Jane Dotson
Joint life insurance is a type of insurance policy that covers two people instead of one. It is most commonly issued to business partners or married couples, but it can also be taken out by domestic partners. Joint life insurance typically lasts until the end of the term, or until the policy pays out. There are two types of joint life insurance: first-to-die and second-to-die.
First-to-die life insurance pays out a death benefit to the surviving policyholder when the other person dies. The surviving policyholder will no longer have life insurance after the benefit is received.
Second-to-die life insurance, also known as survivorship life insurance, pays out the death benefit after both policyholders have died. The payout goes to the beneficiaries of the policy.
| Characteristics | Values |
|---|---|
| Number of people covered | 2 |
| Number of death benefits paid | 1 |
| Policy types | First-to-die, second-to-die, level term, decreasing term, increasing term, whole life |
| Requirements | Proof of shared assets may be needed for domestic partners or business partners |
| Cost | Generally cheaper than two individual policies, but may be more expensive if one person has health issues |
| Payout circumstances | First-to-die: paid to surviving policyholder after first death; second-to-die: paid to beneficiaries after both deaths |
| Use cases | Estate planning, covering spouses who don't qualify for individual policies, providing for special needs children, business transition planning |
What You'll Learn
First-to-die joint life insurance
First-to-die policies are also a good option for situations in which one spouse doesn't qualify for life insurance due to pre-existing health conditions. Insurance companies may be more willing to insure those with health issues because there is only one payout between the two policyholders. However, the healthier spouse will likely pay higher premiums through this joint policy than they would with an individual plan.
It's important to note that first-to-die joint policies terminate once the payout occurs, leaving the surviving spouse without life insurance if they don't have a supplemental plan. In this case, the surviving spouse would need to apply for a new, more expensive policy.
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Second-to-die joint life insurance
- Liquidity to pay estate and inheritance taxes
- Assets to generate funds for other surviving dependents
- Estate equalization among heirs
- Funding for special needs children
The beneficiaries of a second-to-die policy do not have to be the couple's children or relatives. This type of policy can also be used to simplify the transfer of assets to a non-relative, such as a friend or business associate. The beneficiary doesn't even have to be a person—the payout can be used to leave a legacy for a favourite charity or religious organization or as funding for a family trust.
However, it's important to consider the potential drawbacks of second-to-die joint life insurance. For example, the surviving spouse may need to purchase additional insurance at a higher price after the first policyholder dies. Additionally, if one partner has health issues, the premium costs for the policy may increase. It's also important to note that second-to-die joint life insurance policies cannot be easily divided or split in the event of a divorce or separation.
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Joint life insurance pros and cons
Joint life insurance is a type of insurance policy that covers two people, typically spouses or domestic partners, under a single policy. It is designed to provide financial protection in the event of the death of one or both of the insured individuals. While joint life insurance can offer several benefits, there are also some potential drawbacks to consider. Here are some of the pros and cons of joint life insurance:
Pros:
- Cost-effectiveness: Joint life insurance policies can be more affordable than purchasing two separate policies, especially if one partner has high-risk medical issues. The policy only pays out once, covering two people, which results in lower premiums for the policyholders.
- Estate planning and wealth preservation: Joint life insurance can be useful for estate planning and preserving wealth for beneficiaries. The death benefits are tax-free, and heirs can use them to cover funeral costs and other expenses.
- Business protection: For business partners, joint life insurance can provide financial protection for the company in the event of the unexpected death of one of the partners.
- Convenience: Joint life insurance streamlines the insurance process by requiring less paperwork, underwriting, and administrative tasks compared to individual policies.
Cons:
- Limited flexibility: Joint life insurance policies may offer limited flexibility in terms of individual coverages. Both individuals must meet the coverage requirements, and there may be challenges in agreeing on beneficiaries, coverage amounts, and policy duration.
- Tax implications: While death benefit proceeds are generally tax-exempt, there can be tax implications for heirs if no beneficiary is named and the funds become part of the estate.
- Higher costs for surviving partner: In the case of a first-to-die policy, the surviving partner may need to purchase additional insurance at a higher price, especially if they are older or in worse health.
- Long wait for payout: With a second-to-die policy, there could be a long wait for a payout, as it only pays out after both insured individuals have passed away.
- Challenges in case of divorce: Joint life insurance policies cannot usually be divided in the event of a divorce, and separating the policy may be challenging.
Overall, joint life insurance can be a cost-effective solution for couples or partners seeking financial protection. However, it is important to carefully consider the pros and cons to determine if it aligns with your specific needs and circumstances.
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Who should get joint life insurance?
Joint life insurance is a good option for couples who want to ensure their partner and/or children are financially cared for after their death. It is also a good option for couples who want to leave an inheritance for their children or care for a lifelong dependent, such as a child with special needs.
Joint life insurance is also beneficial for business partners who want to ensure that the company is financially secure in the event of one partner's death.
There are two types of joint life insurance: first-to-die and second-to-die. First-to-die insurance pays out after the first person dies, helping the surviving partner maintain their lifestyle and cover expenses. Second-to-die insurance pays out only after both partners have died and is typically used for estate planning and preserving wealth for beneficiaries.
When deciding between joint and individual life insurance policies, couples should consider their current and future needs, the cost of coverage, and the flexibility offered by each option. Joint life insurance may be cheaper than two individual policies, but it may also be more expensive if one partner has health issues. Additionally, joint policies offer less flexibility in terms of individual coverages and can be challenging to divide in the event of a divorce.
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How to get joint life insurance
Joint life insurance is a type of insurance that covers two people under a single policy. It is most commonly issued to married couples or business partners, but it can also be obtained by domestic partners or couples who are engaged to be married. The policy will pay out either after the first person dies or after both people have died, depending on the type of joint life insurance.
There are two types of joint life insurance: first-to-die and second-to-die. With first-to-die, the policy pays out to the surviving person when the other dies. This type of insurance is often used to compensate for the lost income of a spouse or partner. Second-to-die, on the other hand, pays out a death benefit to the beneficiaries only after both insured persons have died. This type of policy is typically used for estate planning purposes.
Before purchasing joint life insurance, it's important to consider what kind of coverage you need, including any specific riders that may need to be added. You can then query insurance providers to determine the cost of coverage. Many providers offer online portals where you can apply and receive a quote. Keep in mind that you may need to submit to a medical exam as part of the application process.
Joint life insurance can be a cost-effective solution for couples or partners who are looking for financial protection. However, it may not be the best option for everyone, especially if one partner has health issues, as this can increase the cost of the policy. It's important to carefully consider the pros and cons of joint life insurance before making a decision.
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Frequently asked questions
First-to-die policies pay out the death benefit to the surviving policyholder when the first person dies. Second-to-die policies, also known as survivorship policies, only pay out the death benefit after both policyholders have died.
You can keep the policy active as long as the premiums continue to be paid, but you will have to negotiate your insurance policy as part of the divorce, including who will be responsible for the premiums.
You will receive the death benefit, but you will no longer have life insurance coverage. You will need to purchase a new policy if you still need coverage.
You will not receive a death benefit, but you will be responsible for continuing to pay the premiums to maintain coverage. The death benefit will be paid out to your beneficiaries when you die.
