Warning sounded on unintended beneficiaries of life cover

By Chloe Cheung

A report by Swiss Re and Insuring Change found the rates of cohabiting couples and single life policies were both on the rise, making it more important that policies are set up correctly.

The report cited ONS data showing cohabiting couples accounted for one in four couples under the age of 65 in 2019, while it said the percentage of single life policies being set up increased from 76 per cent in 2018 to 76.6 per cent in 2019.

It warned a cohabitee would not be entitled to claim money that was intended for them if a policy was not set up correctly, with proceeds payable according to the rules of intestacy if the insured person dies without leaving a will. This means the insurance could pay out to their next of kin instead of their partner.

Ron Wheatcroft, technical manager at Swiss Re, said: “Ahead of investment in designing and implementing online trust or beneficiary nomination solutions, there are various low-tech improvements that can be made to encourage correct policy setup.

“Fundamentally, we need to put accurate policy setup on the same footing as other product basis choices. Who we pay, and how soon, really matters to customers, so how we communicate this is vital. Addressing some of the widespread flaws in current communication could make a big difference.”

Wheatcroft added: “2021 would be a great time to remind customers of the benefits of cover and encourage keeping it in force, whilst also inviting them to consider if their cover needs any adjustment to better meet their needs – including, of course, whether they have made arrangements for the policy to go directly to the people they intend.”

Naomi Greatorex, managing director at Heath Protection Solutions, said: “If not explained it is highly likely that many couples who are unmarried will buy single life assurance policies and expect they will pass to their partners, however if not set up properly the insurance will actually pay out a claim to their next of kin, not their partner who it may be intended for.”

Greatorex added that she believed there was a “real unawareness” of this among consumers and stressed the importance of speaking to an adviser.

She continued: “When setting up single life policies consideration should always be given to writing the life assurance in trust. This allows the nomination of the partner as a beneficiary, and gives the insured person the control over their life assurance.”

David Mead, founder of Future Proof and joint head of protection at St James’s Place Protection Planning, said funds held in trust could pass to the intended beneficiary without being delayed by probate.

Mead said: “While many people may believe the proceeds will go to the person they intended all too often this isn’t the case. A cohabitee would have no rights to the proceeds unless they are named specifically as a beneficiary of the proceeds in the deceased’s will.”