Cohabitees are no longer a “negligible” minority so advisers have a crucial role in communicating the importance to marital status when organising life cover, Insuring Change partner Ruth Gilbert has emphasised.
She noted it was “fundamental” for advisers to understand this situation for their clients and that there were increasingly alternatives available to setting up trusts.
Gilbert (pictured) spoke to Health & Protection following a warning from consultant Johnny Timpson that incoming regulation and a steep decline in marriages meant it has never been more important for advisers to ensure protection policies were properly set up for cohabitee partners.
Timpson highlighted latest figures from the Office for National Statistics (ONS) published last month which confirmed the number of marriages in England and Wales had halved from 1972 to 2019.
And he warned that the Financial Conduct Authority’s (FCA) incoming Consumer Duty rules would further increase the scrutiny on advisers to address the needs of unmarried couples.
Gilbert told Health & Protection she was “delighted” Timpson was giving the issues of cohabitees the profile they deserve.
“For so many years, this growing population of couples have been treated as non-existent when it comes to the rights that married couples can take for granted,” Gilbert said.
“The Consumer Duty should be a turning point for the financial services sector to ensure it isn’t perpetuating this gross inequity.”
Gilbert added financial advisers were on the front line for minimising the risks of things going wrong for their cohabiting clients, especially when it comes to their money.
“It seems cohabitees are no longer a negligible minority, but rather a very significant one which is still growing. ONS figures suggest they could account for one in four couples under 65, and one in three couples under 45.
“While advisers can’t fix everything for cohabitees, as a minimum they need to realise how important marital status is to the arrangements they are making for customers. When it comes to life cover, it’s fundamental,” she added.
“In the most usual circumstance where the cover is meant for the partner, it must not be left to chance as to whether they’ll get it.
“It’s no good just to have mentioned the importance of doing a will, which often just doesn’t happen – although there is value in setting up a sign-posting arrangement, to make sure it does, along with any powers of attorney,” she added.
Life cover is for someone else
But according to Gilbert, the whole point about life cover is that it is for someone other than the applicant, and it should be set up to reach them from day one.
“Using a trust naming the partner as the or a beneficiary and ensuring a trustee is appointed, maybe the partner, is essential when there’s no other option. But trusts aren’t the simplest of things to get done and do right.
“The continued low take up of trusts is evidence of this.”
Gilbert added the other option was to bake this assignment of benefits into the policy.
“This happens automatically with joint life policies which generally don’t need a trust, although that is rarely mentioned as one of the advantages of joint life,” she continued.
“More rarely, but still possible, for a single policy the intended claimant can be made an owner of the policy. A life of another application can be done with the partner as the applicant or more rarely, just added as a joint applicant.
“A few advisers achieve the same thing with a deed of assignment when a trust or life of another application doesn’t suit.”
But Gilbert noted that the downside of making the partner an owner of the policy is that it can be awkward to amend later if circumstances change.
“This is the advantage of beneficiary nomination in the policies offered by Royal London and by Guardian with its Payout Planner,” Gilbert added.
“Nominations are simple for the policyholder to change as the nominee has no legal rights until the claim after death.
“As beneficiary nomination is so simple to do at point of sale too, life should become easier all round once it becomes more widely available.”