What Is Joint Life Insurance?

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Key Takeaways

  • Joint life insurance, covering two individuals under a single policy, is often more affordable than purchasing two separate policies, providing a cost-effective solution for couples or domestic partners.
  • Two types of joint life insurance are first-to-die and second-to-die policies. The first-to-die is less expensive and provides immediate financial support for the surviving partner, while the second-to-die is utilized for estate planning, paying out after both individuals have passed.
  • Understanding the payout structures is crucial. First-to-die pays out after the death of the first insured, while second-to-die pays after both insured individuals have passed away, often used for estate planning.
  • Joint life insurance is a versatile tool for couples because it offers simplicity in administration, potential cost savings, estate planning benefits, and financial security for the surviving partner.
  • While joint life insurance has advantages, potential drawbacks include coverage ending after the first death, possible complications in changing relationship status, and limited flexibility compared to individual policies.

How Does Joint Life Insurance Work?

Most people who buy life insurance get an individual policy, which would pay a death benefit for the covered individual. Joint life insurance operates as a shared policy for two people -- typically married couples -- covering both individuals under a single plan.

A joint life insurance policy shares premiums, policy details, and cash value between the insured. Understanding that joint life insurance covers two individuals who will likely die at two different times, the policy is often less expensive and only pays a single life insurance benefit.

How are joint life insurance policies different from individual life insurance policies?

If you and your spouse were to each buy individual life insurance policies, you would have separate coverage for your deaths. So, if you were to die, your policy would pay a death benefit, and if your spouse were to die, their policy would pay a death benefit.

With a joint life insurance policy, the death benefit is based on both your lives with a single life insurance policy. There are two ways this can work.

How does a joint life insurance policy payout?

A joint life insurance policy can have two payout structures: first-to-die and second-to-die. In a first-to-die policy, the death benefit is paid out upon the demise of one spouse or the first insured person, providing financial support to the surviving partner. In a second-to-die policy, the payout occurs after the passing of the second insured individual, often used for estate planning purposes to cover estate taxes and potential tax liabilities.

What Are The Two Types of Joint Life Coverage?

Joint life insurance coverage comes in two main types: first-to-die and second-to-die policies. A first-to-die policy provides a payout upon the death of the first insured person, offering financial protection for the surviving spouse or partner. A second-to-die policy, also known as survivorship life insurance, pays out when both individuals covered by the policy have passed away.

Understanding which payout order makes sense for your needs is important in choosing joint life coverage.

First-to-Die Life Insurance

First-to-die policies pay out when one partner, or the first insured spouse in a joint coverage arrangement, passes away. This type of joint coverage is typically less expensive than other joint life insurance policies and is often used to cover funeral expenses, debt, or income replacement. It is intended to provide financial security for the surviving policyholder, ensuring they receive the policy's benefit.

Once the first partner passes, the surviving member would receive the death benefit and no longer have life insurance. Some contracts allow the surviving person to then set up an individual policy. However, the cost likely will be higher because they're purchasing at a later age.

Second-to-Die Life Insurance

Second-to-die life insurance is a joint policy that pays out the death benefit only after both spouses or domestic partners have passed away. A joint life insurance policy could be temporary term coverage with a set expiration date, or you could opt for permanent coverage, which lasts as long as you keep paying the premiums.

Typically used in estate planning, this coverage is designed to provide financial support to beneficiaries, such as children. It can be a strategic tool to help pay estate taxes, inheritance taxes, or leave money to loved ones.

What is the difference between joint life insurance and survivor life insurance?

The key difference between joint life insurance and survivor life insurance lies in the payout structure. A first-to-die joint life insurance policy provides a death benefit upon the first insured person's passing, offering financial support to the surviving partner or beneficiaries. In contrast, survivor life insurance, or a second-to-die joint life insurance policy, only pays out after the death of the last surviving insured individual and is often utilized for estate planning to cover potential tax liabilities.

Potential Benefits of Joint Life Insurance

Joint life insurance offers a range of potential benefits for couples or business partners looking to secure their financial future. Providing comprehensive coverage for both partners under a single policy simplifies administration and can serve as a versatile and practical tool for financial planning.

Here are several potential benefits of joint life insurance.

  • Cost-Effective: Joint policies can be more affordable than purchasing separate policies. With a joint policy, you only pay for one death benefit versus two payouts. As a result, insurance providers typically charge less to buy joint life insurance.
  • Simplicity: Managing a single joint policy is often simpler than handling two separate policies, streamlining administrative tasks, and ensuring that the coverage remains intact for both individuals. Policy health standards and restrictions can also be easier to meet and navigate as life insurance companies expect two people combined to have a longer life expectancy than just one.
  • Estate Planning: Joint policies can be a valuable tool for estate planning. The death benefit from a joint life policy can be used to pay off estate or inheritance taxes or other financial obligations, protecting the estate's value for the heirs.
  • Financial Security: Joint life insurance can provide financial security for the surviving individual, ensuring that funds are available to cover immediate needs such as funeral costs, mortgage payments, debts, and other living expenses.

As always, exact benefits and how they are realized can vary based on the specific terms of your policy and the practices of your insurance company. Some policies may offer a rider that lets you divide the policy into individual ones later without taking a health exam. You would likely pay extra for this feature, but it could help keep open your future options.

Potential Drawbacks of Joint Life Insurance

While a Joint Life Policy can provide several benefits, it has potential drawbacks. These include:

  • Coverage Ends After First Death: With a first-to-die policy, the coverage ends after the first spouse dies. This leaves the surviving partner with no life insurance protection. Depending on age and health, obtaining a new policy might be more difficult or costly at this time than if they had initially signed up for their own individual policy.
  • Change in Relationship Status: If the relationship between the insured individuals changes (for example, in the case of divorce), managing the policy can become complicated. Separating the policy might require additional administrative work or health underwriting, meaning one party might need to pay more or lose coverage.
  • Unequal Health Status or Age: If one person is significantly older or has a severe health condition, it could drive up the cost of the joint policy. In such cases, getting two separate policies might be cheaper, whereas insurers may offer better rates for larger individual policies.
  • Limited Flexibility: Joint policies may offer limited flexibility compared to individual policies, as tailoring coverage to each partner's specific needs can be more challenging with a joint approach. For instance, if one party needs additional coverage due to changes in their health or financial situation, it may be difficult to adjust a joint policy.
  • Single Payout: Since a first-to-die policy pays out at the first death, it may not provide sufficient protection if the surviving spouse has a long life expectancy or if the benefit must be used to pay debts or immediate expenses. With survivorship life insurance coverage, it can take much longer for anything to be paid out since both spouses must pass away for the death benefit to be triggered.

While joint life insurance has advantages, it's essential to weigh these potential drawbacks carefully to secure coverage and ensure it aligns with your unique financial situation and goals. Consulting with a financial advisor can provide personalized insights for making informed decisions.

How to Choose the Right Joint Life Insurance Policy

Choosing the right life insurance policy depends on your unique financial goals and circumstances. One general guideline is to have seven to 10 times your annual income in life insurance coverage. You could also consider how much money you might need when the time comes, such as paying for a funeral and replacing an income.

A key factor to consider for joint life insurance coverage is your age when buying joint life insurance. A couple at age 25 with no kids and a limited budget might start by purchasing a low-cost joint term life insurance policy. Perhaps they have children by age 30 and decide they want more coverage using individual plans. At age 35 or 40, they may want to add coverage based on their higher salaries and cost of living. There are many options, so consider your needs and what type of coverage would meet them. A life insurance calculator can help you crunch the numbers.

Term joint life insurance is typically less expensive than a permanent policy but only covers a specific period, such as 10, 20, or 30 years. If you're looking for affordable coverage for a specific period, term life insurance policies may be suitable. However, if both policyholders are alive at the end of the term, the policy expires, and no death benefit is paid out.

Permanent joint life insurance provides coverage for the entire lifetime of the policyholders, with the added benefit of building cash value. While it is more expensive than term joint life insurance, long-term policies, such as whole life insurance, universal life insurance, and variable universal life insurance, can be a good option for couples or partners who want to leave a financial legacy for their children or other loved ones.

Is Joint Life Insurance Right for You?

As with any life insurance purchase, it is important to take time to thoroughly research buying life insurance and consider all available life insurance options, taking into account your financial objectives, coverage needs, family, any health issues, and personal preferences.

Whether a Joint Life Policy is right depends on your circumstances, needs, and financial planning goals. By understanding the pros and cons of each option, you can determine whether or not this might suit your needs and financial situation.

As with all financial decisions, discussing your options with a financial advisor or insurance professional is recommended. They can help you evaluate the costs and benefits of financial protection based on your specific needs and goals.

How to Purchase Joint Life Insurance

Buying a joint life insurance policy is similar to buying any life insurance. You and your partner will meet with a financial professional to understand what life insurance companies offer. Together, you will fill out an application for buying life insurance, listing how much coverage you want, the type of joint life insurance you prefer, and whether you want to add on any riders, such as splitting it into individual policies later.

You and your partner will undergo health underwriting as part of the application process. This may involve answering medical questions, seeing a nurse for a physical, and submitting blood or urine for testing.

The insurance company will review your application and decide if you qualify for joint universal life insurance and at what rate. If you are happy with the offer, you can pay the premium to launch your joint life coverage.

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