- Written By Daniel J. Adams, MBA, CFP®, CLU®
Daniel J. Adams, MBA, CFP®, CLU®
Founder and President of CEG Life Insurance Services
As the founder of CEG Life Insurance Services, Daniel J. Adams has extensive experience with life and health insurance products. Daniel assists clients in building a secure financial future as a Certified Financial Planner™ professional and independent insurance agent. He also trains new agents and advises other financial professionals.Read More
- Edited By Michael Santiago
- Published: July 12, 2023
- 3 min read time
- This page features 1 Cited Research Article
Joint life insurance is a type of coverage designed for couples and partners, providing financial protection in case either individual pass away. It can be categorized into two types: first-to-die and second-to-die policies.
First-To-Die Joint Life Insurance Policies for Business Purposes
First-to-die insurance policies can be used by couples to provide coverage for both spouses in case of one partner’s death, and may offer advantages over individual policies. However, these types of policies are generally better suited to serve business needs and objectives.
For business intents, specifically in cases where a buy-sell agreement is involved between two business partners, these policies aim to streamline the implementation of pre-established business arrangements concerning the sale of a jointly owned business.
In the event of one partner’s death, the surviving partner can utilize the death benefit payout to acquire the deceased partner’s business share from their spouse or family, as stipulated in the agreement
Benefits and Applications of Second-To-Die Joint Life Insurance Policies
Second-to-die life insurance, also referred to as survivorship life insurance, is a favorable choice for couples aiming to leave a financial legacy to their heirs, prioritizing those beneficiaries over their surviving spouse.
This type of insurance policy finds frequent application in resolving estate taxes or facilitating the transfer of inheritances following the deaths of both spouses or partners. These policies exclusively provide benefits when both insured individuals have passed away.
An important benefit of this policy type is that its cost is calculated based on the healthier insured person, potentially leading to reduced premiums for individuals with health issues in comparison to individual policies. Furthermore, even individuals who would typically be considered uninsurable can secure a joint-life second-to-die life insurance policy by joining forces with a healthier spouse or partner.
Cash Value Considerations in Joint Life Insurance Policies
Although both types of joint policies, first-to-die and second-to-die, are categorized as permanent life insurance, it is not a requirement for them to include cash value, and in many cases, they do not.
However, cash value can still hold significance in a joint-life policy, despite its absence being common.
For instance, survivorship variable life insurance policies offer the opportunity to invest a portion of each premium payment in a variety of investment options specified by the policy. Through this allocation of premiums into investments, joint life insurance policies have the potential to build cash value over the course of time.
Guarantees and Lifetime Coverage in Joint Life Insurance
The primary requirement for joint life insurance policies is to offer a lifelong guarantee of payment, regardless of the timing of the insured individuals’ deaths. The key aspect of these policies is their ability to ensure that the payout will be made upon the occurrence of the insured parties’ deaths.
However, in a first-to-die life insurance policy, a surviving spouse would be left without life insurance coverage after the payout, and its main benefit is providing payment to the partner in the event of the policyholder’s death.
Survivorship, or second-to-die, life insurance pays out only after both partners have passed away. Its payout is specifically designed to benefit the heirs of the couple.