Just updated to most recent 14.6 iOS version but do not see unlock with Apple Watch option

See the 'What you need' section in:

Unlock your iPhone with Apple Watch when you're wearing a face mask - Apple Support

In addition to iOS 14.6, you need:

• An Apple Watch Series 3 or later with watchOS 7.4 or later
• Your Apple Watch needs to be paired with your iPhone.
• Your iPhone and Apple Watch need to have Wi-Fi and Bluetooth turned on. (You don't need to be connected to a Wi-Fi network.)
• Your Apple Watch needs to have a passcode, and wrist detection must be turned on.
• Your Apple Watch needs to be on your wrist and unlocked.
• You need to be wearing a mask that covers your mouth and nose.

Do you meet all hosed requirements?

Solved: OK, my bad. Apparently, my watch was not updated, though I don't know why not; I always update when it says one's available. So ... I updated Apple Watch (iPhone was already updated), powered both of them completely off (NOT Force Restart) and then once I turned them back on, was able to toggle on the Unlock with Apple Watch button. Now, it works perfectly. Thanks!

This reply is not helpful, unfortunately. Both my iPhone and my partner's are updated to iOS 14.6, yet we cannot use Unlock with Apple Watch because the switch for that is turned off. The message by the switch says Software Update Required--yet our Software Updates section in Settings recognizes that we ARE updated to 14.6. How can this be resolved?

Me too

See this;

Unlock your iPhone with Apple Watch when you're wearing a face mask – Apple Support