What Is Joint Life Insurance?
Joint life policies are often used by couples or spouses and can serve a few different purposes depending on the specific type of policy. Business partners can also purchase joint life policies.
Joint life policies are often used by couples and spouses.
There can be a cost-saving motivation to getting a joint life policy, since it may be cheaper than a couple purchasing separate policies.
It can also be more straightforward, with one policy representing a couple instead of having to deal with two separate contracts, rules and premiums.
Main Types of Joint Life Insurance Coverage
There are two main types of joint life insurance coverage. In both cases, the policy is tied to two individuals. The key differences are when the death benefit is paid out and the purpose of taking out the policy in the first place. Joint life policies tend to be permanent.
First-to-Die Life Insurance
First-to-die life insurance works exactly as the name implies. When a couple takes out a joint life policy in this format, the death benefit is paid out to the surviving member once the first member of the couple dies.
This can be an intriguing option for couples looking to ensure financial security for the remaining partner if something happens, without having to take out two separate policies and pay separate premiums.
Instead, the policy works for both and is paid out to the survivor if either member of the couple dies.
However, it’s important to remember with this type of policy that the surviving spouse will not continue to be covered once the death benefit has been paid out. The death of the first spouse signals the end of the policy.
If the second member of the couple dies, there would be no additional benefit paid out to beneficiaries or heirs.
Second-to-Die Life Insurance
In a second-to-die life insurance policy, the benefit is paid once both members of the policy have died. It is then paid out to the named heirs or beneficiaries of the policyholders.
Second-to-die policies can be a useful vehicle for wealthy couples to help their heirs avoid losing money to things like the estate tax after their death. The death benefit from the policy can help to cover those taxes, leaving the actual estate closer to untouched.
This type of strategy may only be helpful for a very small share of Americans. According to the Internal Revenue Service, the estate tax in 2023 only applies to estates worth about $12.9 million or more.
Remember that, in a second-to-die policy, there is no payout of any kind when the first person named on the policy dies. There is only a payment once both policyholders have died.
Second-to-die life insurance is also sometimes referred to as survivorship life insurance.
Pros and Cons of Joint Life Insurance
As with all types of policies, there are both pros and cons with joint life insurance.
There is no blanket policy that makes sense for everyone. Whether or not joint life is the right choice for you will depend on your personal needs and circumstances.
Benefits of Joint Life Insurance
There are several benefits to joint life insurance, depending on the type. For a first-to-die policy, an obvious benefit is to create security for the surviving partner in a couple if one partner dies.
The survivor will receive a death benefit that can help offset lost income or a tough financial situation.
First-to-die policies may be cheaper than taking out two separate policies for each member of the couple. Instead, the death benefit is just received by the survivor regardless of which partner dies.
On top of that, there can be less confusion and paperwork to deal with if both partners are on a single policy.
For second-to-die life insurance, the main benefit is the ability to help offset some of the taxes owed by beneficiaries and heirs. The death benefit, paid out once both members of the policy have died, can be significant enough to pay for some of the taxes and costs high-wealth estates face when transferring assets.
This makes second-to-die insurance particularly effective for wealthy individuals.
Disadvantages of Joint Life Insurance
There can be significant disadvantages to both types of joint life insurance, especially if your specific circumstances do not make sense for these policies to be effective.
Since both policies are often used by partners and married couples, anyone interested in joint life should be wary about the possibility of divorce. Since the policy is tied to both individuals, it can be difficult to untangle if that couple wants a divorce.
Specifically for second-to-die policies, an added disadvantage is the length of time it can take for the policy to pay out, since the death benefit will not be distributed until both partners are deceased. This also means that the surviving partner receives nothing when the first partner dies.
Why You Should Consider a Joint Life Insurance Policy
There are several reasons to consider getting a joint life policy. A first-to-die policy can be a good option for couples who are looking for life insurance coverage without having to take out multiple policies and deal with separate premiums and contracts.
It’s a solid way to provide financial security to the survivor in the event that either partner dies.
Who Should Consider a Joint Life Insurance Policy?
- Couples looking for financial security if one spouse dies
- Wealthy couples looking to protect their heirs from taxes
Second-to-die policies, meanwhile, are strong vessels for wealthy individuals to protect their assets for their heirs. If you expect to have a large estate when you die (as large as about $12 million or more) then a survivorship policy can help you to balance out some of the taxes that your heirs may face when you die.
Can Married Couples Get Joint Life Insurance?
Married couples can get joint life insurance. In fact, joint life policies are typically aimed at couples and partners.
But it is important to consider the stability of a marriage before committing to joint life insurance. Policies that are tied to two people can be difficult to unwind if a divorce occurs.
Some joint life contracts may include a divorce rider. This can be a useful provision to add since it can offer a path to resolution on the policy if you do get divorced.
Frequently Asked Questions
- Can you have multiple life insurance policies?
- You can have multiple life insurance policies at the same time. As long as you are financially able to pay the multiple premiums that will come with those policies, there is nothing stopping you from doing so. There is also no rule or regulation that would stop you from taking out life insurance policies from different companies.
- What is the difference between joint life insurance and survivorship insurance?
- Survivorship insurance is a specific type of joint life insurance. Joint life refers to a policy that is connected to two people instead of just one. In a survivorship policy, the death benefit is not paid out until both of the people (typically a couple) connected to the policy have died. That benefit can be used by the heirs of high-wealth individuals to handle things like the estate tax or inheritance taxes.
- Is joint life cheaper than survivorship?
- Remember that survivorship insurance is a type of joint life insurance. Of the two types of joint life, survivorship is the more common and widely available version. For that reason, there may be cheaper options available in some circumstances than for first-to-die life insurance.
- How are joint policies different from individual coverage?
- Joint life insurance policies are different from individual policies. In standard, individual life insurance, the policy is centered on one person with a death benefit typically paid out when that person dies. A joint life policy is tied to two different people. Depending on the type, the death benefit can be paid out to one person if the other dies or to a named beneficiary when both die.
Editor Samantha Connell contributed to this article.