Joint Life Insurance: What You Need To Know

Joint life insurance is a type of insurance that covers two people under a single policy. It is most commonly issued to married couples, but it is also available to domestic partners and business partners. Joint life insurance is typically permanent, though some insurers offer term policies. There are two types of joint life insurance: first-to-die and second-to-die. First-to-die pays out to the surviving partner after the first insured person dies, while second-to-die, or survivorship, pays out a death benefit to the beneficiary after both insured people have died.

First-to-die joint life insurance

First-to-die life insurance is the most common type of joint life policy. It is often used by younger married couples to replace each other's earnings. However, once the policy pays out, the second person has no remaining protection. If the survivor wants to continue to be insured, they will have to apply for a new policy at rates that will likely be higher.

Joint life insurance is a niche financial product. Not every life insurance company offers them, and even those that do may not offer both term and permanent life insurance options. First-to-die policies are typically permanent, as most couples buying it do not want temporary protection. If the policy term ends before one spouse or partner dies, there is no payout.

Joint life insurance is generally less expensive than two individual policies. However, if one spouse has high-risk medical issues, a joint policy might cost the same as two individual policies.

Second-to-die joint life insurance

The premiums for second-to-die joint life insurance are typically less expensive than purchasing two separate permanent life insurance policies since the premiums are determined by the joint life expectancies of the insured parties. This type of policy may also be easier to qualify for if one person has health issues, as the benefits are only paid out after both insured individuals have passed away.

Joint life insurance for married couples

Joint life insurance is a type of insurance that covers two people under a single policy. While it is most commonly taken out by married couples, it is also available to domestic partners and business partners.

Types of Joint Life Insurance

There are two types of joint life insurance: first-to-die and second-to-die, also known as survivorship life insurance.

First-to-Die

With first-to-die insurance, the policy pays out the death benefit to the surviving spouse when the first spouse passes away. This type of insurance is often used to compensate for the lost income of a spouse or partner. In a dual-income household, first-to-die policies can help the surviving spouse manage finances and maintain their lifestyle.

Second-to-Die

Second-to-die policies, on the other hand, pay out the death benefit to the beneficiaries after both insured persons have passed away. This type of insurance is geared towards beneficiaries and cannot provide a payout to either of the two people covered by the plan. Second-to-die insurance is typically used by wealthy couples to ensure their heirs, such as adult children, have the funds to pay estate or inheritance taxes.

Benefits of Joint Life Insurance for Married Couples

Cost-Effective

Since a joint life insurance policy covers two people, it generally costs less than purchasing two separate policies. This makes it a good option for couples who want to save money on premiums.

Covers Both Spouses

A joint policy can be beneficial when one spouse is unable to secure individual coverage, usually due to poor health or an underlying medical condition. The joint policy ensures that both spouses are covered under a single plan.

Builds Cash Value

Joint life insurance policies can accumulate cash value over time. When you pay your premium, a portion covers the cost of life insurance and policy expenses, while the remainder is applied to the cash value. The growth in cash value is federal tax-deferred, and it can be accessed for various personal needs.

Customizable

Joint life insurance policies can be customized by purchasing riders, allowing the coverage to fit your specific situation.

Considerations for Married Couples

While joint life insurance offers several benefits, there are also some considerations to keep in mind. Joint policies may be more expensive if one partner has health issues, and the surviving spouse may need to purchase additional insurance at a higher price after a first-to-die policy has been paid out. Additionally, joint policies can be challenging to divide in the event of a divorce.

Choosing the Right Option

When deciding between joint and separate life insurance policies, it's important to weigh the pros and cons of each option and consider your current and future needs. Separate life insurance policies can provide tailored coverage for each spouse, while joint policies offer cost savings and ensure that both spouses are covered. Consult with a financial professional or insurance agent to determine which option is best suited to your individual circumstances.

Joint life insurance for business partners

Joint life insurance is a type of insurance policy that covers two individuals instead of one, but it only pays a single death benefit when one of the two people insured dies. It is most commonly issued to business partners or married couples.

Types of Joint Life Insurance

There are two types of joint life insurance: first-to-die and second-to-die. The main difference between these types is when the death benefit gets paid out.

First-to-Die Joint Life Insurance

First-to-die joint life insurance is a policy that pays a death benefit to the surviving partner when the other one dies. With first-to-die joint life insurance, when one policyholder dies, the surviving policyholder receives the death benefit. This can provide them with financial support in the absence of their partner.

Once the death benefit is received, no additional benefits are paid, and the surviving policyholder will no longer have life insurance. They would need to purchase a new policy if they want continued coverage, which could be more expensive at an older age.

Second-to-Die Joint Life Insurance

Second-to-die joint life insurance, also called survivorship life insurance, pays out the death benefit after the second surviving policyholder dies. This means neither policyholder will receive a death benefit. The payout will go instead to the joint policyholders’ beneficiaries.

With second-to-die life insurance, when the first policyholder dies, the remaining policyholder is responsible for continuing to pay the premiums to maintain coverage. Second-to-die life insurance is typically used for estate planning.

Pros and Cons of Joint Life Insurance

Pros

• It can make coverage cheaper.
• It can help provide coverage for someone who otherwise wouldn't qualify.
• It can support an estate planning strategy for people with significant assets.
• It can ensure the continuation of business as part of a buy-sell agreement between two business partners.
• It can be flexible, allowing you to increase or decrease the amount of your premium payment.
• It can provide growth, as your policy builds a tax-deferred cash value over time.
• It can be accessible, allowing you to access the cash value to pay for your child's education, make major home improvements, grow your business, etc.

Cons

• It can leave one person without coverage.
• It can complicate divorce proceedings.
• It can be more expensive than two individual policies, especially if one spouse has a medical condition or is significantly older than the other.
• It delays the policy's payout.
• It can be difficult to find, as joint life policies are considered niche financial products.

Who Should Get Joint Life Insurance?

Joint life insurance is less common because most couples find individual policies easier to manage. However, a joint policy might make sense for couples who can't afford or qualify for two individual policies, a spouse who may have difficulty qualifying for coverage alone, or couples planning to leave an inheritance for their children.

Business partners might also choose to purchase joint life insurance to protect their professional assets in case one partner passes away before the other. The surviving partner could use the death benefit to cover business expenses and ensure the continuation of the business.

Pros and cons of joint life insurance

When deciding between joint life insurance and individual policies, there are several pros and cons to consider.

Pros of joint life insurance

• Joint life insurance is often more affordable than taking out two individual policies.
• With first-to-die policies, the payout goes straight to the surviving partner, which can make the payment process quicker.
• You don't need to be married to take out joint cover.
• If one person is having difficulty getting approved or obtaining an affordable single life policy due to older age or poor medical history, that person can be covered through a joint policy if their partner is younger or in better health.
• If both co-insured parties have the same insurance needs, the policy can be drafted so that both individuals are offered the same coverage.

Cons of joint life insurance

• Your beneficiaries will only receive one payout.
• If a couple with joint cover splits up, the policy can't usually be divided.
• Once couples sign up for a joint life insurance policy, they can't separate the policy down the road. If the couple breaks up or divorces and cancels the policy, they will lose all the money they've put into the plan together.
• If one partner dies, the surviving partner may also need a life insurance policy to make ends meet, but they might find it difficult to purchase life policies at affordable prices due to premiums increasing with age.

Frequently asked questions