Life insurance and critical illness cover for unmarried couples

Madeinireland101

My daughter is in the process of purchasing a property with her boyfriend. They will be buying the property as tenants in common and having a floating deed of trust to cover the fact that she will be contributing a much larger deposit. They will both be paying the mortgage in equal shares and her boyfriend may make capital repayments from time to time in order to try and level up her larger deposit - though this is uncertain - hence the need for the floating deed to adjust percentage ownership. At some point they will likely marry but not sure when.

In terms of life assurance and critical illness cover has anyone got any suggestions on the best way forward with that? as they are asking me and I don’t know. I have heard there could be issues having a joint policy compared to two single policies if the worse should happen and they decide to go their separate ways. 

In addition I’ve heard that if one policy holder were to die the payout from the joint policy is not guaranteed to pay the mortgage and could go just go to whoever the will (or lack of a will) determines and they would be under no obligation to pay off the mortgage - creating an issue for the survivor. Alternatively I’ve heard that it is tied in to paying the mortgage - so not sure which it is.

Anyone had any experience of this situation? Suggestions gratefully received.

Thanks...

dunstonh

In terms of life assurance and critical illness cover has anyone got any suggestions on the best way forward with that?

A simple decreasing term assurance on joint life first death basis assuming it is a repayment mortgage

I have heard there could be issues having a joint policy compared to two single policies if the worse should happen and they decide to go their separate ways. 

The mortgage only needs to be paid once if either of them die.  There is no need for two single life plans.  If they do split up then they keep the joint one until the property is dealt with.  After that, neither would be financially dependent on the other and there would be no need for life assurance. 

In addition I’ve heard that if one policy holder were to die the payout from the joint policy is not guaranteed to pay the mortgage and could go just go to whoever the will (or lack of a will) determines and they would be under no obligation to pay off the mortgage - creating an issue for the survivor

Not correct.   A joint life, joint owner policy pays out to the surviving owner and is not part of the estate on first death.

Madeinireland101

Dunstonh - Thanks for the useful pointers. Is what you say true for a tenants in common arrangement?

Assuming the survivor uses all the proceeds paid out to them to pay the remainder of the mortgage would this simply give a huge boost to their % ownership of the property in terms of inheritance positions of both parties. To me it seems strange in that both parties would have contributed the same in terms of equal policy payments and I would have expected the position to be not changed after the payout.

Aretnap

Madeinireland101 said:

Dunstonh - Thanks for the useful pointers. Is what you say true for a tenants in common arrangement?

Assuming the survivor uses all the proceeds paid out to them to pay the remainder of the mortgage would this simply give a huge boost to their % ownership of the property in terms of inheritance positions of both parties. To me it seems strange in that both parties would have contributed the same in terms of equal policy payments and I would have expected the position to be not changed after the payout.

Madeinireland101 said:

Dunstonh - Thanks for the useful pointers. Is what you say true for a tenants in common arrangement?

Assuming the survivor uses all the proceeds paid out to them to pay the remainder of the mortgage would this simply give a huge boost to their % ownership of the property in terms of inheritance positions of both parties. To me it seems strange in that both parties would have contributed the same in terms of equal policy payments and I would have expected the position to be not changed after the payout.

They really need to make wills to define what happens to the house if one of them dies. The norm would be for each to leave their share in the house to the other. The wills can always be changed if they split up in future.

The life insurance payment is intended for the benefit of the surviving partner, so becomes the property of the surviving partner on death regardless of who actually paid the premiums. If the surviving partner then uses it to pay off the mortgage in one lump sum this naturally means that they have contributed more to the mortgage than the deceased partner, though if the deceased partner has done the normal thing and left his share to his partner that is a fairly academic point. 

Madeinireland101

Ok thanks for that

Weighty1

Firstly, who do they each want to inherit their share of the property if either of them die?  If it's the other partner then joint life, first death would be the most appropriate.

If it's someone else then how is that going to affect the ownership of the property.  Is the beneficiary going to want to keep their share or sell it on to release the equity, thereby forcing the sale of the property?

They need to decide what they want to happen in certain circumstances before the best course of action can be decided upon.