How Does Joint Life Insurance Work? With first-to-die life insurance, when one policyholder dies

A joint life insurance policy is a single policy that covers two people for the cost of one premium. This type of policy can provide financial security and peace of mind for married couples, domestic partners and even business partners. Mitsui Sumitomo Insurance to buy U.S. reinsurance broker for $400 million, Nikkei reports.

What Is Joint Life Insurance?

Joint life insurance is a type of life insurance policy that covers two individuals instead of one, but it only pays a single death benefit when one of the two people dies.

Bundling two policies into one can sometimes be a more affordable option than purchasing two individual life insurance policies.

How Does a Joint Life Insurance Policy Work?

Insurance companies offer two types of joint life insurance. Both policy types only pay a single death benefit but differ based on payout circumstances.

First-to-die joint life insurance

With first-to-die life insurance, when one policyholder dies, the surviving policyholder receives the death benefit. This can provide them with financial support in the absence of their partner.

Once the death benefit is received, no additional benefits are paid, and the surviving policyholder will no longer have life insurance.

Some insurance companies may offer the option to convert the policy to an individual policy with the same death benefit. But the new policy might have higher premiums.

Before buying a joint life policy, ask about future conversion and payout options.

Second-to-die joint life insurance

Second-to-die life insurance, also called survivorship life insurance, pays out the death benefit after the second surviving policyholder dies.

This means neither policyholder will receive a death benefit. The payout will go instead to the joint policyholders’ beneficiaries.

With second-to-die life insurance, when the first policyholder dies, the remaining policyholder is responsible for continuing to pay the premiums to maintain coverage.

Second-to-die life insurance is typically used for estate planning. For example, the death benefit from a second-to-die policy could be used by adult children to pay estate taxes once both parents have passed away.

Second-to-die life insurance is not a good choice for young couples who need a payout to their surviving spouses.

Pros and Cons of Joint Life Insurance

Pros                                                                                              Cons

• Can be more affordable than two separate policies
• Empowers surviving beneficiaries in estate planning
• Marriage not required
• Price usually based on the healthiest spouse for a
   second-to-die policy                                                               • May cost more than an individual policy
• Complicated to split in a divorce

What are the benefits of joint life insurance?

There are several benefits to joint life insurance.

  • Affordability. A joint life policy can be more affordable for two people than purchasing two separate policies.
  • Estate planning. Second-to-die life insurance provides a death benefit that beneficiaries can use to pay for funeral expenses, estate taxes and inheritance taxes.
  • Marriage not required. Joint life insurance does not only apply to spouses. Many insurance companies will sell joint life insurance policies to domestic partners or business partners. Proof of shared assets may be required.

What are the disadvantages of joint life insurance?

Just as there are benefits to joint life insurance, there are also disadvantages.

  • Can cost more. Because you are insuring two parties, it can cost more than an individual policy.
  • Health of one person affects the rate. Pricing is based on both people on the policy, but a second-to-die policy can be much more affordable when one person has health issues, because price will be based mostly on the healthier partner.
  • Hard to split in a divorce. It is difficult to divide joint life insurance if a couple gets divorced.

Who Should Buy Joint Life Insurance?

Parents and couples may buy joint life insurance as a way to financially protect their families and their estates. Here are some examples:

  • Second-to-die life insurance is a good way for a couple to provide funds that are only needed after they have both died, such as funds for a legacy or for children to pay estate taxes.
  • Parents of a special needs child can use second-to-die life insurance to fund a trust that will provide financial support for the child once the parents pass away.
  • Business partners might choose to purchase joint life insurance in order to protect their professional assets in case one partner passes away before the other.

Where Can I Buy Joint Life Insurance?

There are many life insurance companies that offer joint life insurance, such as:

  • Fidelity Life. You can buy a permanent life insurance joint policy, or in some cases, a joint term life insurance policy.
  • Guardian Life. Only offers second-to-die life insurance. Guardian’s EstateGuard is a whole life insurance option that offers this coverage.
  • New York Life. Only sells second-to-die or survivorship life insurance, but it does offer an optional rider that pays out following the death of the first policyholder.
  • State Farm. Sells joint universal life insurance, which builds tax-deferred cash value.

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