Joint life insurance is a unique form of life insurance policy that is designed to cover two persons but only pays a single death benefit when one of the duo dies.
A couple can decide to subscribe to life insurance and opt for an affordable option. Rather than getting two individual life insurance policies, they simply bundle two policies into one. This is exactly what a joint life insurance policy is – the two individuals can team up to purchase a single policy that covers both of them for the cost of one premium.
While joint life insurance is popular with married couples since it offers financial security and peace of mind for both, it can also work for domestic partners, business partners, etc.
How It Works
Joint life insurance policies offered by different insurance providers in different parts of the world usually have the same feature – the policy only pays a single death benefit.
Types
- First-to-die joint life insurance
- Second-to-die joint life insurance
First-to-die joint life insurance
First-to-die joint life insurance offers the benefit to the surviving policyholder when the other policyholder dies. So, in the case of a married couple, if the husband dies first, the wife receives the death benefit, and vice versa, providing them with financial support in the absence of their partner.
The major peculiarity of this one is that once the surviving policyholder receives the death benefit, they no longer have life insurance, and the insurance company no longer pays them any additional benefits (although some firms may allow them to convert the policy to an individual policy with the same death benefit).
Second-to-die joint life insurance
Second-to-die joint life insurance, also known as survivorship life insurance, functions in a way that does not give policyholders a death benefit. After the second policyholder’s death, the funds are transferred to their beneficiaries.
Let’s say a married couple decides to subscribe to second-to-die joint life insurance. First, they have to tender their beneficiaries (such as their children, etc.) who will receive the premium payout when the time comes.
If the husband dies, the wife won’t get any payout (unlike what is obtainable with the First-to-die joint life insurance). Rather, the wife, being the surviving policyholder, will keep paying the premiums to maintain coverage and will do so until her death, too. Then, when she dies, the beneficiaries claim the payout.
Why should you consider a joint life insurance policy?
Affordability
Rather than two people in a relationship or commercial partnership spending more money on getting separate policies, they can save a lot by simply purchasing a joint life policy.
Flexibility
Keep in mind that more than just married couples can purchase a joint life insurance policy. It doesn’t only apply to married people, but even domestic partners and business owners can team up together to get a policy, as long as they can give proof of shared assets.
Long-term needs
Certain insurance options are very beneficial for the future in no small measure—this is one of them. The payouts that the beneficiaries in the future can claim can be very useful for things like inheritance taxes, funeral expenses, etc.
The Cons
Before purchasing a joint life insurance policy, it is necessary to first know its downsides, which include:
Possibility of spending more
There are situations where an individual policy would have been cheaper than when two people decide to opt for a joint life insurance policy.
Health influences
The health of one policyholder has serious effects on the rate, as it is based on the two insured individuals. The policy can usually be only affordable when one individual has health issues.
Tough to settle in cases of divorce
If a couple obtains a policy as a married individual, it is tough to divide joint life insurance in case of divorce.
Takeaways:
It’s a good idea for parents and couples to get a joint life insurance policy as they will ensure the financial security of their families and their properties.
A couple can tap into the peculiarities of second-to-die life insurance as a strategy to ensure the availability of funds that they will only need after their deaths. This can even be useful for parents of a special needs child to fund a trust that will offer financial support for their child when they die.