Taking a joint approach to finances when in a relationship is sensible, with both parties involved in the financial planning process.
However, couples also need to be financially resilient as individuals because not all relationships are long-lasting and healthy.
This is where joint life policies are problematic. They create a financial tie between two people that does not work if the relationship breaks down.
We want the industry to develop and share good practice [to deter] perpetrators of economic abuse
Some insurers offer separation options, but these will not necessarily help people whose economically abusive partner uses a joint life policy to hurt and control them.
Should joint life policies continue to exist? If so, how can the industry prevent them from becoming tools for abuse?
A flawed design
Protection advisers tend to prefer separate life policies over joint cover, regardless of any concerns about economic abuse.
“In this day and age, I can’t think of any situation where you’d ever sell a joint life policy,” says Cavendish Ware director Roy McLoughlin. “If you have two separate policies, you have double the cover.”
In the US, insurers have the safe harbour of splitting the policy or cancelling it
McLoughlin points out that, if a relationship ends and the individuals find new partners, any joint life payouts will go to the previous partner unless the policy has been cancelled or split.
“But that is hard to put across when a couple comes in holding hands,” he says.
Perpetrators of economic abuse can take out a joint life policy with or without their partner’s consent and use it against them. They can taunt their partner about the payout they will get when the partner dies; manipulate them into paying premiums on the policy; or refuse to give their consent to a policy being cancelled or split if the relationship has ended.
“People can use financial products for economic abuse if preventative mechanisms are not put in place,” says Deidre Cartwright, public affairs and policy manager at the charity Surviving Economic Abuse.
If you have two separate policies, you have double the cover
“It’s incredibly common and the impact of it has worsened in the context of the cost-of-living crisis,” she adds.
Safe harbour
According to financial inclusion commissioner and protection industry veteran Johnny Timpson, when insurers receive complaints from survivors of economic abuse about their partner’s refusal to consent to the joint life policy being cancelled or split, a common response is to suggest that the complainant takes legal action.
We feel strongly that a dual life approach gives better consumer outcomes
“That response from the industry is not sufficient,” says Timpson.
“These are vulnerable people who may have little or no assets and are never going to get legal aid.”
Timpson says the UK lags other countries in addressing this issue.
“In the US, insurers have the safe harbour of splitting the policy or cancelling it, no matter the wishes of the perpetrator of economic abuse,” he says.
He believes insurance law needs to keep pace with consumer needs, with changes to protect people from economic abuse being long overdue.
Economic abuse is incredibly common and the impact of it has worsened in the context of the cost-of-living crisis
In the meantime, guidance from the Financial Conduct Authority could help the insurance sector to achieve a similar ‘safe harbour’ in the UK.
Preventing foreseeable harm
Surviving Economic Abuse has released a briefing paper containing recommendations, such as insurance industry leaders developing a code of practice around the prevention of financial abuse.
This ties in with the aims of the FCA’s Consumer Duty and the prevention of foreseeable harm.
“We want the industry to develop and share good practice regarding how to prevent perpetrators of economic abuse from taking out a policy without the survivor’s consent or knowledge, and making it easier to separate joint life cover when a relationship ends,” says Cartwright.
In this day and age, I can’t think of any situation where you’d ever sell a joint life policy
Guardian is one insurer that has tried to address the difficulties around joint life cover. Rather than offer joint life cover, it adopts a ‘dual life’ approach, where each partner’s cover is kept separate even though there is one quote, application form and direct debit.
“This future-proofs the policy and gives the possibility of two payouts, yet it is often only a bit more expensive to put in place,” says Rachael Welsh, Guardian’s head of marketing.
“We feel strongly that a dual life approach gives better consumer outcomes.”
This article featured in the April 2024 edition of MM.
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