Joint life insurance is a recommended choice for couples and/or business partners. Let’s read the following article to know how it works.
Definition of joint life insurance
Joint life insurance is a life insurance option that allows you to buy coverage for two people. Typically, this option is for spouses. In several cases, business partners can also purchase this life insurance to reduce the risk should something happen to one company.
It bears repeating that joint life insurance is not a product but an option for those who buy permanent life insurance. When two people buy whole life insurance, they may choose joint coverage for both. Some companies do offer term life insurance with a joint option, though this is not popular.
Also, it’s essential to differentiate between joint life insurance and combined life insurance. Your life insurance is a combined one if you and your partner purchase single life insurance at the same time from the same company. You and your partner may choose different coverage. By contrast, joint life insurance is a life insurance policy that includes two policyholders. Both parties must share the same amount of premium and coverage.
How joint life insurance works
There are two types of joint life insurance available: First-to-die and Last-to-die. Each works on entirely different principles.
Regarding First-to-die, the death benefit will be paid upon the first death of either of the two insured. As the survivor receives the payout, the policy ends.
By contrast, with Last-to-die life insurance, the policy is in force till the death of both of the insured. As the beneficiary receives the death benefit, the policy terminates.
First-to-die vs. Last-to-die option: Which one should I choose?
Choosing between First-to-die and Last-to-die may be difficult since each has pros and cons.
Concerning First-to-die, this option is suitable for those who want to leave behind a safety net for their partners. This is especially helpful for families with sole breadwinners. Should the income-earner die, their partner can use the death benefit to cover income loss.
First-to-die is an excellent choice for families with large debts or mortgages. When one of the spouses dies, the other may have to shoulder the remaining debt of the deceased. If the spouse buys joint insurance previously, the insurer will help clear out the debt of the one who died. Thus, buying First-to-die insurance, in this case, will relieve the financial burden for survivors.
Yet, First-to-die can be unfavorable. Upon the death of the first insured, the policy will end. Yet, the survivor may want to purchase new coverage. At that time, the survivor must pay more since the premium will be based on their current age. One good news is that some companies will allow the survivor to buy a new policy without showing evidence of insurability. This, of course, is only limited to a limited period after the death of the first insured.
Last-to-die may be attractive to couples who want to leave behind something for their heirs. With Last-to-die, upon the first death of one of the insured, the deceased’s asset will be transferred to the survivor tax-deferred. Thus, couples can make use of this to cover their real estate taxes. One drawback of the Last-to-die is that the survivor will still have to pay for the premium of the deceased.
Limitations of joint life insurance
Knowing about both the pros and cons of joint life insurance will help you make your decision easier. Now that you have understood how each type works let’s talk about the limitations of this option.
First, joint life insurance is less flexible than single life insurance. It is because the amount of coverage of two policyholders needs to be the same. This is deemed unfavorable when one of the spouses has a more severe health problem. It means that the healthier spouse still must pay for the same premium rate as the less healthy one, which will not be the case if the couples purchase a single life insurance policy.
Both First-to-die and Last-to-die have shortcomings. In case you choose the Last-to-die option, the death benefit takes longer to be paid. If you purchase First-to-die coverage, one of the policyholders will have to purchase a new coverage after the first one dies. This, as explained earlier, is undoubtedly more expensive.
Lastly, the insurance is likely to be a shackle for couples if they want to part away later. The truth here is that while the policy is permanent, your relationship may not. If one day you decide to break up with your partner, you may no longer want to share the insurance with them. This may turn out to be overly complicated in some cases. The good news is some companies do offer riders that can help you in this case. Make sure to ask your insurer if they offer the rider or not.
Who should buy joint life insurance?
Notwithstanding its demerits, the option is still a viable choice for couples who cannot afford two individual life insurance plans at once. Usually, the cost of a joint policy is less expensive than two single ones. Furthermore, the underwriting process for this life insurance is often easier than that for single life insurance. If one of the partners has difficulty applying for a single policy, a joint insurance plan can be a great alternative.
Also, the insurance policy entails a saving element. Like any other permanent life insurance, joint life insurance has a cash value. Both spouses have access to this, and they can use the money to prepare for their retirement plan.
Lastly, this option can be a worthwhile investment for couples who want to leave behind a financial backup for their dependents. Plus, the death benefit can also be paid to cover their burial expenses. Buying joint life insurance, in this case, is an effective way for couples to prepare for the worst.
Frequently Asked Questions
Yes. The underwriting process is a compulsory procedure for any life insurance plan unless you apply for a no medical exam life insurance policy. The process helps the insurers classify your health and decide your premiums.
No. Premiums are often based on factors such as your age, coverage, health status, etc. Marriage status does not affect your premiums. With that being said, some insurance companies sometimes offer special promotions for newlyweds. This depends, though.
Joint life insurance is a safety net or an income replacement for your partner should you pass away. Thus, the amount of coverage should be based upon how much money you need if you lose your companion. Things to consider may include debt, final expenses, childcare, etc.
As you decide to get divorced, things get complicated. In joint life insurance, one names their spouse as the beneficiary. When you get divorced, you may no longer want to share the policy with your ex-spouse.
You are then left with two options: cancel the policy or let your spouse take it over.
* If you decide to cancel the policy, and your policy is whole life insurance, you may get the surrender value. This is the cash value you receive when you want to cancel your policy.
* If you decide that one of the spouses will take over the policy, you need to contact your insurer and sign over the policy. Once the transfer succeeds, the one who takes over can change the name of the beneficiary.
In case the couples continue their policy after the divorce, they can still benefit from the policy if one of them passes away.
To discover the available buying options, quotes for joint life insurance from the best insurance companies in Canada, you can refer to Insurance Direct Canada, one of the most reputable insurance brokers there are on the market at the moment.