Joint life insurance is a policy that covers two people rather than one. Most people purchase individual life insurance policies, but there are some situations where a joint policy is a better option. For instance, if you own a business with an individual who is not a family member, or you have a young family where both spouses make approximately the same amount of money.
Ultimately, determining whether joint life insurance is right for you comes down to the specifics of your life circumstances and those of your beneficiaries. Read on to learn more.
Table of Contents
What Is a Joint Life Insurance Policy?
Most life insurance policies cover a single person and offer a payout to the beneficiary after the policyholder dies, as long as the policy is in effect. A joint life insurance policy works the same way, except that two people are the policyholder instead of just one.
You can purchase life insurance as a term policy or a permanent policy. The term policy lasts for a specific period, otherwise known as a term. For instance, employers often offer term life insurance as a benefit to employees, which lasts as long as the company employs them. In contrast, a permanent life insurance policy lasts until the policyholder dies.
How Are Joint Life Insurance Policies Different from Individual Coverage?
Joint life insurance policies list two individuals as the policyholders. In most cases, those people are a married couple or domestic partners, but sometimes business partners have a joint life insurance policy too.
Joint life insurance has one premium to pay and one death benefit to the named beneficiary, even though two people are covered. In many ways, it’s similar to an individual policy, but buying one joint policy is often less expensive than two permanent life insurance policies. It can also open the door to getting life insurance for someone who would not qualify for an individual policy due to their age or health.
How Does a Joint Life Insurance Policy Work?
While joint life insurance covers two people, there are not two payouts. There is a single death benefit when one of the two policyholders in a joint life insurance policy dies. If the two people had purchased individual policies, there would be two payouts, one after each person died.
What Are the Main Types of Joint Life Coverage?
There are two primary types of joint life insurance coverage, first-to-die, and second-to-die. The death benefit is paid based on which type of policy it is. Keep in mind that you will receive just one death benefit.
First-to-Die Policy
A first-to-die joint life insurance policy pays a benefit to the surviving policyholder when the other named policyholder dies. After one policyholder dies, the policy ends, and there is no life insurance for the survivor. In some situations, there may be an option to convert to an individual policy. Check to see if your joint policy can convert to an individual policy if this is important to you.
Young couples with similar incomes often purchase a first-to-die joint policy. The policy’s goal is to provide replacement income if one dies. This type of policy can also be suitable if two people own a small business together, and the death of one will cause hardship to the company.
Second-to-Die Policy
A second-to-die life insurance policy does not offer a payout until both named policyholders have died. In this situation, someone other than the policyholders must be named beneficiary.
Second-to-die policies can protect a couple’s children by giving them a financial payout if both parents die. It can be helpful as an estate planning tool. The beneficiary in a second-to-die policy does not have to be your children; they can be non-related individuals, non-profits, or other named groups.
When one person in a second-to-die joint life insurance policy dies, the policy continues, and the survivor has to maintain premiums to keep the policy active. This type of joint life insurance is often called survivorship life insurance.
The Pros of Getting a Joint Life Insurance Policy
Joint life insurance can be a valuable tool in some specific situations. The following benefits highlight when you should consider a joint life insurance policy:
- More affordable than two policies: Suppose a couple wants to purchase life insurance to provide the surviving spouse or their children replacement income. In that case, joint life tends to be less expensive than buying two individual policies. It only has one payout, whereas purchasing two policies would have two payouts.
- Price is based on the healthiest policyholder: In a second-to-die or survivorship joint policy, the price is usually based on the healthiest person. This can be a benefit if one of the two is elderly or in failing health and cannot get an affordable life insurance policy on their own.
- More control over the estate for surviving policyholder: A joint policy gives the survivor more control over asset distribution regarding estate planning. It also delays the transfer of assets until both have died, which leaves the policy’s cash value for the survivor to tap into if necessary.
- It can help a business survive if a partner dies: A joint life insurance policy can exist with two business partners named policyholders. The surviving business partner can use the death benefit to assist with business expenses to keep the business viable.
The Cons of Getting a Joint Life Insurance Policy
Joint life insurance policies are less popular than individual policies for several reasons. The following cons illustrate why a joint policy is not the first choice for many couples.
- One person may be left without life insurance: In a first-to-die policy, the policy payout happens after one of the policyholders dies, leaving the other person without life insurance. It can be challenging to get a new policy if the policyholder has aged significantly or has developed health problems. If they can get coverage, the price will likely be considerably higher.
- Are not easy to split: Joint insurance policies make breakups and divorce a little more complicated. Some joint policies consider the possibility of a breakup and have an optional provision that allows for splitting the policy. In other situations, the policyholders stop paying and let the policy lapse.
- The payout may take a very long time: A second-to-die policy stays in effect until the second person on the policy dies. The second individual could live a very long time, which will delay the benefit. If it’s a term joint policy, which is rare, there’s a chance a policyholder will outlive the term length, and no one will get a payout.
- Permanent policies are more expensive than term policies: Most joint life insurance policies are permanent; some companies do not even offer term joint policies. Permanent policies are several times more expensive than term policies, so it can be less expensive to buy two term life insurance policies depending on the situation.
Is a Joint Life Insurance Policy Right for You?
Joint life insurance is a good idea in a couple of situations. The first is a business relationship where adding a first-to-die joint life insurance policy to a buy-sell agreement helps a surviving partner keep the business afloat after the other passes away.
Survivorship or second-to-die joint life insurance is good for couples using it as an estate planning vehicle. The death benefit does not pay to either policyholder but goes to the named beneficiary/beneficiaries after they both are deceased.
Young couples with a mortgage and children can also benefit from a joint life insurance policy if they both work and make roughly the same amount. This can be a way for them to get an inexpensive policy and ensure their spouse and children receive some replacement income if one of them dies.
How To Buy a Joint Life Insurance Policy
Joint life insurance is not typical, so it pays to do research before purchasing a policy. Savvy shoppers will compare different joint policy options and look at individual term and permanent life insurance. Remember, not all insurance companies offer the same policies at the same rates.
Some of the essential determining factors include the age and health of both parties, the amount of coverage you believe you’ll need, how long you’ll need the coverage, and if you’d like a cash value option.
Looking at the big picture can also help with life insurance purchases. For instance, a young couple may want to provide security to their spouse and young children. In 15 years, their life situation could look quite different, and they no longer need a permanent joint life insurance policy. In this situation, separate term life insurance policies for both parents might have been cheaper and satisfied their needs.
When you’re ready, contact an insurance agent to start the paperwork. There might be online forms that you can begin, or you can do some of the application over the phone. In most situations, you’ll need an insurance medical exam, and you’ll have to prove you are who you claim to be. Once all of that is satisfied, your joint life insurance will begin.