What is Joint Life Insurance?

Couples who want to purchase life insurance together have two options. They can either buy two separate policies or a single joint life insurance policy.

December 30, 2020

Joint life insurance, which some people jokingly call couple life insurance, covers both spouses in exchange for a single premium payment each month.

Continue reading to find out more about a joint life insurance and whether it’s right for you.

What is Joint Life Insurance?

Joint life insurance is a life insurance product that’s built for two. It requires only one application and pays out only once. If you are looking for life insurance for couples, joint life insurance could be a good choice.

Why? Glad you asked.

A joint life insurance policy usually costs less than two separate policies for two reasons:

In the case of joint life insurance, you and your partner will be covered for the same amount, and the policy will end once the insurer pays the death benefit to your beneficiaries.

Joint life insurance is usually permanent. That is, the policy stays in force until one or both of you pass away, depending on its terms. Depending on how your permanent joint life insurance policy is structured, it may include a savings component. The money in this savings account, called cash value, grows on a tax-deferred basis. You can borrow against or withdraw from your cash value any time and use the money as you see fit.

Joint term life insurance, by contrast, provides coverage only for a specific period and doesn’t build cash value. For these reasons, it is considerably cheaper than joint permanent life insurance.  

Types of Joint Life Insurance

Joint life insurance is of three types: joint first-to-die, joint last-to-die, and combined.

Joint First-To-Die Life Insurance

Happy couple walking on a bridge.

A first-to-die policy pays the entire death benefit when the first of the two insured persons die.

Joint first-to-die life insurance can be used to pay off a mortgage or any other type of debt. It relieves the burden of debt payments for the survivor, especially if he or she doesn’t earn a paycheck. Such a policy can also be used for income replacement, particularly when both spouses have similar incomes.

A joint first-to-die policy can prove critical in a business setting as well. You and your business partner can use it to fund a buy-sell agreement. It can also help ensure that your business doesn’t face financial hardships if either of you were to pass away prematurely.

First-to-die life insurance is similar to a single-person life policy. Once the insurer pays the death benefit, the coverage terminates. If the survivor still wants coverage, he or she will have to apply once again.

Joint Last-To-Die Life Insurance

Joint last-to-die life insurance pays the death benefit after the last insured dies. It is also known as survivorship life insurance or last-to-die life insurance. After the death of the first insured, the surviving partner will have to continue paying premiums to maintain coverage.

The surviving spouse doesn’t receive any financial benefit in the case of joint last-to-die insurance. For this reason, it isn’t a suitable option for debt repayment or income replacement. Most people buy these policies to leave a legacy for their children.

Combined Life Insurance

Old couple watching the sunset.

Combined life insurance works pretty much the same way as two single-person policies. That is, both you and your spouse will get coverage, and the insurer will pay the death benefit twice.

So what’s the benefit of taking combined life insurance?

Well, combining yours and your spouse’s policy into one can help you save money. Insurers offer a pretty good discount (3-5%) when you combine two policies into one.

The Positives and Negatives of Joint Life Insurance

Positives of Joint Life Insurance

Joint life insurance is often cheaper than buying two separate life insurance policies. It could make sense for young couples on a tight budget. Another benefit is that it pays a death benefit regardless of which partner dies.

Negatives of Joint Life Insurance

The biggest drawback of joint life insurance is that it pays out only once. While buying two separate policies increases the cost, it also means double the coverage since each policy will pay a death benefit separately.

Also, in the event of a divorce, you may be forced to cancel the policy. If several years have elapsed since you bought the policy, you may have to pay a higher premium on account of your age.

The surviving partner of a first-to-die life policy faces a similar problem. The policy ends at the death of the first insured, and if the surviving spouse wants coverage, they will have to take another policy. Since life insurance costs increase as we age, that’s likely to come at a higher rate.

Why Would You Want Joint Life Insurance?

happy couple walking in a forest.

Joint life insurance could make sense for:

  • Young couples who want coverage for themselves and their partner but have a limited budget for life insurance
  • Couples who want life insurance only to cover a major debt, like a mortgage

What Happens to a Joint Life Insurance Policy After Divorce?

What happens to your joint life policy when you and your partner call it quits?

Here’re your options:

  1. Maintain the joint policy together

You and your spouse can opt to maintain the joint policy together after a divorce. For that to happen, however, you two will have to agree to the terms of managing premium payments. This can be unwelcome stress in an already stressful situation.

  1. One person maintains the policy

You or your ex can take over the joint policy. This might make financial sense if the policy was bought several years back and you’d have to pay higher premiums now because you’re older.

  1. Cancel the policy

Alternatively, if you have whole life insurance, you can cancel the joint policy for its surrender cash value. The amount will be equivalent to the cash value of your policy minus any fees and penalties.

  1. Divide the joint policy into two separate policies

Some insurers offer a separation benefit that allows you to divide a joint policy into two individual policies. Usually, this option is available only when you are under a certain age and apply within a specific period (generally 90 days) after your divorce.

Conclusion

Joint life insurance covers two people and is usually cheaper than buying two individual policies. However, the tradeoff is that it pays the death benefit only once. It could make sense for couples on a tight budget. For others, we recommend buying two separate policies.

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