Cohabiting Couples: What they need to know about Life Insurance

Rob O’Neill QFA, Senior Financial Advisor

According to Census 2011, there were 57,671 cohabiting couples with children under 20, representing 9.2% of all families with young children, this is an increase of 1.7% since Census 2006. This figure does not include cohabiting couples without children making this demographic a fixture in modern Irish society.

Unfortunately, Irish law has still not caught up with this change in Irish families and cohabiting families are often unprotected financially should the worst happen. What is more frightening is that many cohabiting couples may not be aware of how precarious their financial situation could be, if one should die.

Irish Life have provided an example of how a cohabiting couple can be affected by the death of one partner.

From IrishLife.ie

David and Sarah are living together in a house they purchased jointly. They have mortgage protection cover for their loan and they feel their other life assurance protection needs are covered as they both have existing ‘own life’ life assurance policies.

On David’s death the mortgage protection policy pays off their loan. As joint owner, Sarah inherits their family home, but as she owns an apartment with her sister she is not eligible for family home relief. She is not concerned however as she is going to use the proceeds of David’s old life assurance policy to pay her Inheritance Tax bill. David did not leave a Will. As his cohabiting partner Sarah has no rights to any of David’s assets under the Succession Act so the death benefit from David’s life assurance policy is actually paid to his parents, as his next of kin.

For any cohabiting couple contemplating life insurance, there are two things to consider:

• Who the sum assured is intended for, and
• How will that sum assured be taxed

As far as the law is concerned, unless a partner is named in a will, they are essentially a stranger to the deceased and a will not allow a partner to avail of any Inheritance Tax reliefs that are afforded to other family members.

Despite the legal and tax difficulties facing bereaved partners, there are life insurance products available that have been specifically designed with cohabiting couples in mind. Choosing a life insurance product on a single life ‘life of another’ basis will allow cohabiting couples avoid large tax bills and the proceeds will be paid to the policy owner almost without delay.

To find out more about starting a life insurance policy suitable to the needs of a cohabiting couple, talk to Rob, our life insurance expert today by calling 01 822 8022 or by emailing rob@mcfinancial.ie.What kind of Life Insurance do Cohabiting Couples need?