If you’ve been searching for life insurance, you may have come across the term “joint life insurance.”
These policies are designed for couples and can work out to be much cheaper than buying two single life insurance policies.
But is it really the best option for you? We explain how joint life insurance works and lay out the pros and cons to help you decide.
The Differences Between Single and Joint Life Insurance Policies
As the name suggests, single life policies only cover one person. Joint life policies, on the other hand, cover two lives, usually you and your spouse.
Types of Joint Life Insurance Policies
There are two main types of joint life policies: first-to-die and second-to-die.
First-to-die Insurance
First-to-die insurance is paid out when one of the two people it covers dies. It doesn’t matter which spouse dies first, or who had the higher income. The insurance benefit will be paid regardless.
Once the money has been claimed, the policy lapses, leaving the surviving spouse uninsured.
Second-to-die Insurance
Second-to-die life insurance is only paid out when both the people covered die. The benefit is paid to their next of kin or to their estate.
Combined Life Insurance
A third type of policy you may have come across is combined life insurance. Combined life insurance is when two single life insurance policies are bundled together.
The insurer usually gives you a small discount for buying two policies.
It’s important to note that this is not the same as joint life insurance.
Combined life insurance actually consists of two separate policies, which means that there will be two payouts, one for each person who dies.
Which Joint Life Insurance Policy Is Best?
The answer to this question really depends on your circumstances. The two types of joint life insurance are used for very different purposes.
First-to-die Life Insurance
The purpose of first-to-die life insurance is very similar to regular life insurance. It provides an income for the surviving spouse and dependents.
In many families these days, both partners are working, so the loss of either income can severely impact the family’s ability to meet day-to-day expenses and pay off debts, such as a mortgage.
But what about households where one person is a home-maker?
Well, if they pass away, someone will need to cover their usual duties, whether it’s through paid help and child care or whether the surviving spouse cuts back on work so they can pick up the slack at home.
Either way, the family is financially impacted, and first-to-die life insurance can help with that burden.
Second-to-die Life Insurance
Second-to-die life insurance is a little different. It’s only paid out if both spouses die, and it takes longer to payout than regular life insurance.
For this reason, it’s mostly used for inheritance purposes rather than as income for a dependent. It effectively leaves a nest egg for the heirs.
There are a couple of things to note about second-to-die life insurance. Firstly, in cases where the beneficiaries are children, they cannot be paid the money directly.
Instead, the money will go into a trust or to their legal guardian.
If the children are minors, it’s a good idea to consult a lawyer on the best way to organize the second-to-die insurance so that the children will be financially secure
The other thing to note is that second-to-die life insurance doesn’t stop after the first death. The policy will continue, and the surviving spouse will need to keep paying the premiums.
If they stop making premium payments, the policy will lapse.
Permanent Vs Term Joint Life Insurance
Joint life policies are usually permanent life insurance policies. Though joint term life insurance policies do exist, they are much rarer.
In general, permanent life insurance is much more expensive than term life insurance, and the same is true for permanent and term joint policies.
The Pros and Cons of Joint Life Insurance Policies
Pros
- Cheaper Than Two Policies
Joint life insurance can often work out cheaper than buying two single life insurance policies.
- Flexibility
If you don’t qualify for single life insurance on your own, you may still be approved under a joint policy with your spouse.
This is because the insurer deems you to be high risk, and your spouse to be low risk, and the two can sometimes offset each other.
Cons
- In cases of divorce
Splitting a life insurance policy can be tricky and can further complicate divorce proceedings.
- You may still need to buy two policies
When a first-to-die policy is claimed, if the surviving spouse wants to remain insured, they may need to buy a single insurance policy for themselves.
Since they will (hopefully) be much older by that point, a new insurance policy could be quite expensive.
- Health issues
If one spouse has pre-existing health issues, it can drive the cost of a joint policy up. In this situation, it may be cheaper to buy two separate policies.
- Insured amounts
In a joint life insurance policy, both spouses must be insured for the same amount.
Some insurers offer optional add-ons that allow you to insure one spouse for a little more, but they will charge you a higher premium.
Where Can I Find Joint Life Insurance?
A majority of insurers offer joint life insurance; however, most don’t label their products “joint life.”
Instead, the life insurance application will have a box you can tick to choose either a single or a joint life policy.
Conclusion
Though joint life insurance is often cheaper than buying two single policies, it does have a few potential drawbacks.
These types of policies are most commonly used for inheritance purposes and can help your next of kin pay off inheritance and estate taxes.
However, the best thing about joint life insurance is that it can cover people who can’t afford, or aren’t approved for, regular insurance.
