Insurance implications for cohabiting couples

Peter Atkinson, national technical portfolio manager, FIA

As a result, it is important for unmarried couples to contact their insurance provider to ensure their belongings are always covered against theft, total loss or damage.

Peter Atkinson, national technical portfolio manager of the Financial Intermediaries Association of Southern Africa (FIA) said that determining the extent to which a homeowner's policy will cover property that does not belong to the policyholder or his or her immediate family presents challenges to insurers due to the variety in modern living situations.

"Insurers must provide cover that is fair, while at the same time addressing the legal requirement of insurable interest, which prohibits someone from taking out insurance cover on property where he does not stand to lose financially if the property is damaged, lost or stolen."

The matter is further complicated by the fact that property owned by a cohabitator moving onto the premises may not have been catered for in the calculation of the sum insured on the homeowner's policy, said Atkinson. "In some cases the cohabitator may have their own insurance policy, which may or may not respond in the event of a claim."

He provided the following example: Should a woman bring her gym bike to her boyfriend's house - and her homeowner's insurance policy covers the bike as long as it remains at her house - the bike is not covered at her boyfriend's residence. "Should the bike be destroyed in a fire at the boyfriend's home, a claim for the bike is unlikely to be paid out as it is not included under the contents section of his homeowner's policy. It is also worth noting that the boyfriend does not have any insurable interest in the bike."

The benefits of seeking financial advice

Each insurance company addresses this challenge in a different way, highlighting the benefits of seeking financial advice to ensure both cohabitator's possessions are fully covered, said Atkinson.

Then there is the case of how to insure property for a couple who both have contents insurance on their homes, but decide to move in together, resulting in two separate insurance policies to cover one household's contents. "One should not have two policies covering the same item," said Atkinson. "The cohabiting couple would be paying two premiums and, in the event of a claim, the insurers would probably have to apply proportionate contribution to prevent more than the value of the insured item being paid out. In this example, both parties could keep their policies, but state that they only want to insure certain items for which they have insurable interest."

An easier solution would probably be to have one policy that defines both parties as insured persons (co-insureds or joint insureds) at the outset, provided the insurer is willing to accept such an arrangement. "In this case, the principle of 'disclosure of all material facts' becomes important - the insured must disclose the cohabitation upfront and make sure that the sum insured is sufficient to cover the total property value to prevent disputes at claim stage."

In order for unmarried couples to enjoy full cover for their possessions it is critical that they are transparent with the insurer about their living situation and clearly define who owns what.

"A financial and risk advisor can greatly assist in this regard as he has the necessary skills and expertise to negotiate with the insurance provider to secure comprehensive cover for both parties. Unfortunately, those consumers using direct insurance may struggle to find a solution that will meet their needs as they do not have the luxury of professional advice," concluded Atkinson.