Joint life or single life?

Required Reading


  


Joint life or single life?


Endowment policies can be written either on your own life or on the `joint lives' of yourself and your wife or husband. These days, however, you are unlikely to be given a choice. Life companies have had so many problems with joint-life policies issued to couples who have subsequently divorced that they are unwilling to issue them now.

If you really want one, you could fight for it -but why should you? There's no real advantage in having a joint-life policy, and you should really be taking out extra life assurance cover in excess of what is given by the endowment policy anyway.

There is one circumstance where a joint-life policy might be preferable: if one of you suffers poor health. Most endowment mortgage policies these days have 'free cover' limits so that, assuming you are reasonably young and in good health, the life company will automatically accept you.

If you are older, with a record of bad health, and have a large mortgage, it may be both more difficult and more expensive to take out an endowment policy. You may have to attend a medical examination. The best advice is to consult a broker if you are in this position.

Recent developments

In the last few years, new varieties of endowment mortgage have been appearing regularly. Under the impact of the MIRAS system, they have been coming in thick and fast. Some life companies now offer `low-start' endowment mortgages, where the premium rises by steps each year for the first five years, making it easier to afford for the hard-pressed first-time buyer.

The 'unit linked' life companies have also to a limited extent entered the mortgage field. The value of a unit-linked policy can go down as well as up, so that at first sight they are not particularly suitable for use as the means of paying off a mortgage.

Unlike traditional life companies, unit-linked companies do not use reserves to smooth out the investment performance from one year to the next. If your policy is linked to an equity fund, for example, and the equity market drops in any particular year, so also will the value of your policy -as simple as that. But if the market is doing well, you will receive more or less the full benefit; you get the performance undiluted, as it were, without the need to transfer part of the profits to reserves.


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Endowment Mortgages


Endowment mortgages and moving

If you are buying your first property with an endowment mortgage, it is very unlikely that you'll be 'seeing the mortgage out'. When you move, you will usually have two options. Either you continue with your original endowment and take out another one for the extra amount you will have to borrow you extend and expand your original endowment policy.

The advantage in the first route lies in the fact that you will be able to pay off a portion of your total mortgage loan early, when the first endowment policy matures. The disadvantage is that the cost of the mortgage during the middle years will be relatively more expensive.

Table 14 Moving house with an endowment policy (1)

Total . . .... see: Endowment Mortgages


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