What is a joint life insurance policy?
Joint life insurance covers two people under one policy. It pays out a single death benefit when one or both of the two people insured die, depending on the type of joint policy.
While buying an individual life insurance policy for each person is usually cheaper, joint life can be a good fit for certain married couples or domestic partners — for example, if one person isn’t eligible for their own life insurance policy due to health or age reasons. Even business partners who want to protect their business in case one of them passes away can benefit from a joint life insurance policy.
Which are the two types of joint life insurance?
There are two main 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 to your loved ones.
1. First-to-die life insurance
In first-to-die life insurance, the policy pays out after either one of the two people protected by the policy dies. First-to-die policies are rare, but may be a good option for certain individuals.
People in a marriage or domestic partnership where at least one person isn’t eligible for an affordable individual policy due to health issues or any other reasons
Couples with shared large debts, like a mortgage
Young families
A small business you run with a partner
First-to-die life insurance is similar to an individual life insurance policy because after one person dies, the surviving partner receives the payout and the policy ends. The surviving partner won’t have to pay any more premiums, and there won’t be an additional payout when they die.
If the surviving spouse still wants life insurance, they’ll need to apply for a new policy on their own. They’ll likely have to pay more than they would have earlier, too, because life insurance gets more expensive as you age.
2. Second-to-die life insurance
A second-to-die life insurance policy — also known as a survivorship policy — pays out the death benefit after both people named on the policy die.
Second-to-die policies are best for couples who intend to use the policy proceeds for estate planning purposes, such as:
Covering estate or inheritance taxes
Leaving a nest egg for their heirs
You won’t need to pay estate taxes unless your estate is valued at $13.61 million. [1] This makes second-to-die policies generally beneficial only to high-net-worth couples.
Also, because there can be a long period between the first policyholder’s death and when the death benefit is paid, second-to-die policies aren’t meant to provide financial relief to the surviving partner during their lifetime.
If you’re considering getting a second-to-die policy, make sure both partners would be able to continue making payments after the other partner dies. Otherwise, you’ll lose your coverage and forfeit the payout.
What type of life insurance is second-to-die?
Most second-to-die insurance policies are permanent life insurance. This means they never expire and usually come with a separate cash value account that earns interest over time. You can use this account while you’re still living to borrow from and in some cases, pay premiums.
Permanent life insurance is significantly more expensive than term life insurance, which expires after a set term and doesn’t have cash value. Unlike a first-to-die policy, the surviving spouse in a second-to-die life insurance contract is still responsible for paying the premiums after the other policyholder dies.
Read more about how life insurance works
What are the pros & cons of joint life insurance?
Pros
It can support an estate planning strategy for people with significant assets. A survivorship life insurance policy can help the beneficiaries organize and conserve their inheritance.
It can ensure continuation of business as part of a buy-sell agreement between two business partners. If one of them should pass away, the surviving partner can use the death benefit to assist with business expenses.
Cons
It can be more expensive than two individual policies. If one spouse has a medical condition or is significantly older than the other, you may pay higher premiums for a joint policy than you would for two separate policies.
It delays the policy’s payout. If your policy only pays out after you and your spouse die, your beneficiaries could wait years to receive insurance proceeds.
It complicates divorce proceedings. Though some insurers offer a rider that will split a joint policy in the event of a divorce, a shared policy adds complexity to the negotiations no matter what.
One spouse may need to buy their own policy anyway. If one spouse still needs coverage after the other passes away, they’ll need to buy a new policy, which will cost more due to changes in age or health.
Who should get joint life insurance?
Joint life insurance is less common because most couples find individual policies easier to manage. But a joint policy might make sense for:
Couples who can’t afford or qualify for two individual permanent policies
A spouse who may have difficulty qualifying for coverage alone
Couples planning to leave an inheritance for their children
How to buy joint life insurance
The application process for joint life insurance is similar to that of traditional policies.
Fill out an application with your partner and have a phone call with an agent.
Take a medical exam. This is the part of the process when the insurance company reviews your health history to determine your rate. The medical exam is similar to an annual physical that you can take at your own home or office.
Wait for the insurance company to review your application and give you your final rate. This step is called underwriting.
Sign the paperwork to accept your policy, and pay your first premium. Your policy will then go into effect and you’ll be covered.
If you’re considering joint life insurance, it’s best to work with an independent insurance agent to weigh the options for your circumstances.
At Policygenius, our licensed experts can answer your questions every step of the way, handle paperwork, and help you secure the policy that’s right for your family.
