How to deal with an unexpected life event: the death of a partner

The death of a partner, an illness, or an accident that could lead to long periods of unemployment are events that people don’t like to think about. We explore how unexpected life events can often have the most devastating financial repercussions.

Let us look at some of the financial implications of the death of a partner or spouse.

Loss of a partner or spouse: what you shouldn’t assume

According to research from national bereavement support charity, Widowed and Young (Opens in new window) (WAY), some bereaved partners have had to change jobs or move houses because they could no longer afford to pay the rent or mortgage.

One member said: “My outgoings doubled. I lived comfortably, and now I worry about money constantly, on top of grief.”

Another said: “I could no longer afford to live in the home my partner and I shared, nor could I afford a new place on my own, so I had to move in with my neighbour initially and then with my mum. That was the biggest financial impact: not having a home anymore.”

To avoid finding yourself in a situation like this, it pays to be prepared – especially if you are not married.

"One common misconception people have," says Vicky Anning of WAY, "is that if they live together their partner will automatically be their next of kin.”

“In fact,” she continues, “people who were cohabiting have far fewer rights in bereavement than their counterparts who are either married or in a civil partnership.” WAY is campaigning to change this, with a UK Government Remedial Order on the topic expected later in 2022.

How to handle the hidden costs of bereavement

If you aren't married or in a civil partnership, consider putting life insurance contracts into an appropriate trust, so you don’t get saddled with inheritance tax (Opens in new window) on life insurance payments. This could happen if the insurance pushed the value of the estate over a certain threshold.

If you are married or in a civil partnership, however, you may be entitled to Bereavement Support Payment (Opens in new window), a government benefit. Keep in mind, you must claim within three months of your partner’s death to get the full amount.

If you need help covering funeral costs, which can be upwards of £4,000, there’s a range of government support to draw upon, from one-off bereavement payments to council-funded funerals depending on where you live and what your circumstances are. Be prepared for potential delays when dealing with some councils, however, as the pandemic has put a strain on finances when it comes to ‘public health funerals’.

If you are paying a mortgage, and need some breathing space, you may be able to ask your provider for a mortgage holiday. This means you won't have to make payments for a temporary period, but when this ends your mortgage balance will be higher than it was before the holiday. Then, you would either need to make higher payments or extend the term of your mortgage, if permitted. This can also impact your credit rating.

In the past, many mortgage providers required proof of life insurance or something similar, such as mortgage protection or decreasing life insurance, at the application stage. These policies are designed to pay the value of the outstanding mortgage outright, should one of the owners pass away.

While this is no longer the case, bereaved partners with children may still want to consider taking out life insurance to protect their dependants’ financial future.

Bereaved partners wishing to keep their family home may need to find alternative ways of supplementing their income to cover the mortgage. This could include taking in a permanent lodger or placing a guest room, an annexe or even the entire house on a holiday rentals site.