A joint life insurance policy is a type of permanent life insurance that covers two individuals, who may or may not be married, under a single life insurance policy. This is usually a less expensive option than purchasing two separate policies. You can buy either a first-to-die policy, where the surviving spouse receives the death benefit, or a second-to-die policy, where the death benefit is paid out to the policyholders’ beneficiaries. There are advantages and disadvantages to each type of joint life insurance policy.
Purchasing life insurance can be an important way to take care of your family when one partner passes away (or both do). But it can be tough to figure out the best type of insurance coverage you need at a price you can afford.
Let’s take a closer look at joint life insurance policies, which kind is right for you, and when it makes sense to buy joint life insurance over another kind of policy.
What is a joint life insurance policy?
Joint life insurance is an insurance policy that specifically covers two people. It offers life insurance coverage for both partners under a single policy that can often be more affordable than buying two individual life insurance policies.
Usually, joint life coverage is bought by married couples, but it could also be purchased by unmarried domestic partners or even business partners. Joint life insurance is usually a permanent policy, unlike term life insurance which expires after a set period of time. So it provides a death benefit and also carries a tax-deferred cash value component.
How joint life insurance works
There are two basic types of joint insurance coverage policies: first-to-die policies and second-to-die policies.
With first-to-die coverage, when one of the policyholders passes away, the death benefit goes to the surviving spouse or partner. This is a great way to provide financial support for the person left behind and any dependents you may have.
It’s important to understand that with a first-to-die policy, as soon as one partner dies, the surviving partner is left without life insurance protection. This may not be a problem in your situation, but it’s important to be aware of.
If you purchase a second-to-die life insurance policy, also called survivorship life insurance, neither policyholder receives the payout when one of the two passes away. Instead, the death benefit is passed on to the beneficiaries after both of the joint policyholders pass away.
When a partner passes away, the second covered person is now solely responsible for paying the premiums to keep the survivorship life insurance policy active and maintain coverage. If they don’t, the joint life policy expires and no one receives the death benefit when the other covered person dies.
This type of joint life insurance often works well as part of an estate plan in which a couple wants to leave behind a nest egg for adult heirs. They could use the money to pay estate taxes or inheritance taxes without having to sell off other assets, for example.
Some second-to-die joint life insurance policies allow you to purchase an optional rider that will pay a death benefit to the surviving partner. This may also be less expensive than separate policies. For instance, New York Life, one of the biggest insurers in the country, offers that life insurance option on its survivorship policies.
“Sometimes a spouse may be a rider on another spouse’s policy and there might be… slight savings (due to a single policy fee) rather than two policy fees,” explains Mike Raines, owner/agent at Raines Insurance Group.
A word on joint life insurance vs. joint universal life insurance
For example, as your children age into adulthood you may not need as much coverage as you did when they were dependent on you. Talk to your insurance provider about this option if you think it might apply to you and your partner in the future.
Benefits of joint life insurance
There are several good reasons why buying joint life insurance might be a smart move for some consumers. For example, with a first-to-die joint policy, like other types of life insurance, the surviving spouse can use the death benefit to care for any dependents, cover funeral expenses, and pay off existing debts.
In some cases, it can be less expensive for people to buy a first-to-die or survivorship life insurance policy. One of the reasons is that people that secure coverage with first-to-die policies are often young, two-income families in good health. So they’ll save money by buying a single policy with joint coverage rather than two policies. This is because the risk for life insurance companies is reduced by only having to pay one death benefit.
For example, if each partner was to purchase an individual life insurance policy for $1 million apiece, the life insurance company could be on the hook for a $2 million payout if, tragically, both policyholders die at the same time. With first-to-die life insurance, there’s only the possibility of paying out one death benefit of $1 million.
With second-to-die coverage, joint policyholders can save money for the same reason. However, they can also get a break on their premiums if, for example, one of the partners has health issues that would make an individual policy prohibitively expensive (or impossible). This is because survivorship life insurance typically bases its premium payment more on the healthier partner of the two.
“The joint second-to-die policy is typically less expensive than owning separate policies on each spouse since the risk can be spread out amongst the two insureds, especially if one insured is not as healthy as the other,” Raines explains.
Oftentimes, survivorship life insurance products are a popular choice for couples with more complex estate planning needs. The death benefit from the joint policy can be used to insulate future beneficiaries from estate taxes and inheritance taxes. The payout could also be put in a trust for underage children or a special needs child who needs lifelong care.
The money can also be used as a legacy for the heirs or to pay for funeral expenses and other end-of-life costs without tapping into other estate assets. In addition, the surviving person can make use of the cash value of the joint policy if needed, while still alive.
Marriage isn’t required
This may not seem like a huge plus for some people. However, it means that any two people with a relationship that relies on one another, like having shared assets, can get joint life insurance coverage. It can be handy for domestic partners who don’t plan on marrying but have children together or for business partners who would be in big trouble if one partner passed away unexpectedly.
Drawbacks to joint life insurance
Depending on your circumstances, joint life insurance doesn’t make sense for every couple.
Yes, we did say that “lower costs” were an advantage of joint coverage, but that’s not always the case. For example, if the surviving partner of a first-to-die life insurance policy needs to purchase a new life insurance policy, the overall cost of life insurance could be higher in the long run. Plus, that survivor is presumably much older now, which raises the cost of premiums significantly.
First-to-die insurance could also be more expensive if one of the partners has any health issues, is a smoker, or engages in other risky activities.
Hard to split in a divorce
If your marriage ends in divorce, it can be difficult to split up a joint policy. That said, some life insurance companies, like New York Life, do have provisions for when and how to split a policy in the event of a divorce or a change in federal estate tax law.
Here is a list of the benefits and drawbacks to consider.
- It can be less expensive than buying two separate policies.
- They work well for couples with complex estate planning needs.
- You don’t have to be married to get a joint policy.
- It could also be more expensive than buying two separate policies, especially if one partner has health issues.
- It could be difficult to split the policy in a divorce.
Once you consider the pros and cons of joint life insurance, talk to an unbiased insurance or financial expert to see if one of these joint policies makes sense for you and your partner. You may find that term life insurance or another life insurance policy makes more sense. Either way, be sure to get multiple life insurance quotes and carefully read the policy terms before signing up. Compare your options below.
Who should buy joint life policies?
When buying life insurance, it’s important to consider your coverage needs, personal finances, family situation, and future plans.
Joint coverage could be a more affordable choice for young, healthy couples (who don’t have a lot of money saved) to act as income replacement or other financial support if one of them dies suddenly. It can also be a smart way for partners in business to protect their joint assets if one of the partners passes away.
A second-to-die joint policy can also be good for more affluent couples with complicated estate-planning needs or for those who just want to leave some money behind for their descendants.
It’s also important to remember that there is no one-size-fits-all approach when you decide to buy life insurance, says Sahang-Hee Hahn, head of strategy and planning at Haven Life.
“When purchasing a life insurance product, the ‘best deal’ differs from person to person. Ultimately, consumers need to consider what coverage payout will give them and their loved ones peace of mind and what premium amount is appropriate to their current overall finances,” says Hahn.
- Joint life insurance is a type of life insurance policy that covers two people, married or not, so they don’t have to purchase two separate policies.
- When you buy joint life insurance, you choose between a first-to-die policy or a second to-die-policy, also known as survivorship life insurance.
- Sometimes, but not always, having a joint life insurance policy is less expensive than buying separate policies. However, there are some risks to consider before purchasing a policy.
View Article Sources
- The Purpose of Life Insurance — New York State Dept. of Financial Services
- Life Insurance Statistics and Industry Trends To Know in 2023 — Annuity.org
- Facts + Statistics: Life insurance — Insurance Information Institute
- I Need Life Insurance. What Kind of Life Insurance Should I Buy? — SuperMoney
- What Does Life Insurance Cover? — SuperMoney
- The Differences Between Whole and Term Life Insurance — SuperMoney
- Estate Planning Checklist — SuperMoney