What joint life insurance separation options do insurers currently offer?

In reading this article you will understand:

• Why separation options might be necessary for clients
• What options insurers offer for clients wishing to split a joint life insurance policy

What restrictions or limitations insurers impose on separation options

We previously examined whether two single life insurance policies are better than a joint, with the overall conclusion being that single life cover is usually superior. There will nonetheless be circumstances where joint cover is appropriate for married or civil partnership couples, (read the insight previously mentioned to see why joint cover for co-habiting couples may not be appropriate).

Not every marriage or civil partnership will work out and if the relationship does break-up there may be a need to also ‘split’ any joint life insurance policies the clients have in place. In this insight we look at which insurers offer separation options that will allow a joint life policy to be divided into two, highlighting the differences between them.

Separation options are usually exercised in three situations: where a couple divorces or their civil partnership is dissolved, where a mortgage is transferred to one name, or when one partner moves out of the shared home and into another house.

With the exception of AIG’s Instant life Plan, Aviva’s Simple Life Plan and HSBC’s Life Protection Plan all insurers life products include separation options. Instant Life and Simple Life are budget stripped-back life policies, designed with simplicity in mind, hence why separation options are not included. HSBC offer a traditional policy, but decided not to include this option. I’ve chosen to include them in the graphics below as their plan doesn’t fall into the same category as the budget plans.

Are there age limits on separation options?

As is often the case with protection policies, age limits can apply to certain features, which restrict their usage among older clients. The table below shows that Legal & General and Vitality set a maximum age after which the separation option cannot be applied, with everyone else setting no maximum age. Clients who want to apply for a separation option should find the experience hassle-free given that none of the insurers listed requires further medical underwriting before they will start the process.

Once a separation option has been agreed, a new policy will either be set up using the premium rates that applied when the original policy was taken out, or the rates at the time of the request.

AIG, Legal & General and Zurich will all write a new policy based on the rates at the time of the request. Other insurers –  Guardian, Royal London, Scottish Widows and Vitality – will apply the rates from when the client’s original policy was set up.

Are there circumstances when separation options won’t be offered?

Where the client was originally accepted on non-standard terms, all insurers who include the separation option now allow the client to use this.

How long does the client have to exercise the separation option?

With the exception of Vitality, all insurers allow the client up to 6 months following their divorce or dissolution of civil partnership to exercise the continuation option. Aviva and Vitality offer a shorter time period of up to 3 months following the divorce or dissolution of civil partnership.

Taking into account all the factors listed in our table, Guardian, Royal London and Scottish Widows stand out for doing all the right things in favour of the client. These insurers are identical in the way they allow separation options to be exercised on joint life policies in all the situations listed and having no maximum age limits on these options.

In addition, their separation options do not exclude clients who have a rating and the new plans that are set up as a result of separating a joint policy are based on the original premium rates, not those at the time of the request. This will benefit clients, particularly if a couple separates a long time after they took out the initial joint policy. The original rates will be better because the clients were younger at that time and would have been priced by insurers as a lower risk.

Things to reflect on for CPD:

• How might each insurers approach to separation options influence your recommendations?
• Are there any factors you would consider before recommending a joint plan in the first place?
• Required further reading: read this insight on whether two single life insurance plans are better than a joint.