Joint life insurance policy, which some people jokingly call couple life insurance, covers both spouses in exchange for a single premium payment each month.
If you're in your late twenties or early thirties, you've probably started thinking about life insurance. And if you're married or have kids, joint life insurance policy is probably at the top of your list.
But what is it? is it worth your money, and should you choose it over single life insurance policy? Read on to find out.
- Joint life insurance policies are usually cheaper than two separate policies for two reasons: the payout is made only once, and married people live longer than singles.
- Joint life insurance policies are of three types: joint first-to-die, joint last-to-die, and combined.
- The biggest drawback of joint life insurance is that it pays out only once.
What is Joint Life Insurance Policy?
Joint life policy 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 for your family.
Why? Glad you asked.
Joint life products usually can cost less than two separate policies for two reasons:
- The payout is made only once
- Married people live longer than singles (as a result, life insurance companies offer them lower rates)
Since joint life policy is a special type of life insurance, it is recommended to talk to an advisor before getting a policy.
In the case of a joint life insurance policy, you and your partner will be covered for the same amount, and the life insurance policy will end once the insurance company pays the death benefit to your beneficiaries.
Joint life insurance policies are usually permanent life insurance. That is, the life insurance policy stays in force until one or both of you pass away, depending on its terms.
Depending on how your permanent joint coverage is structured, it may include a savings component. The money in this savings account, called cash value, grows on a tax-deferred basis. The security of knowing that you can borrow against (policy loan) or withdraw from your cash value any time and use the money as you see fit is reassuring.
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. Although short-term insurance policies might not offer as much coverage as other policies, be sure to compare your options before making a final decision.
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
A joint first-to-die policy pays the entire death benefit when the first of the two insured persons die.
The advantage of a Joint first-to-die 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 life insurance policy can also be used for income replacement, like an annuity 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.
Joint first-to-die is similar to a single life insurance policy. Once the insurer pays the 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 ownership of the policy will transfer to the surviving partner who 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 individuals buy these policies to leave a legacy for their children.
Combined Life Insurance
Combined life insurance works pretty much the same way as two single life insurance policy. That is, both you and your spouse will get coverage, and the insurer will pay the death benefit twice. Long-term planning is important for families to ensure that they are able to stay afloat and continue to grow in the future.
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 A Joint Life Insurance Policy
Positives of Joint Life Insurance
Joint life insurance policies offer several advantages for couples. In addition to being cost-effective, they provide financial security for young partners facing budget constraints. Moreover, these policies offer the assurance of a death benefit, ensuring that the surviving partner receives financial support regardless of which individual passes away. This type of coverage can alleviate worries about future expenses, such as mortgage payments, debts, or childcare costs. By pooling resources and obtaining joint life insurance, couples can protect their loved ones and achieve peace of mind.
Negatives of Joint Life Insurance
The biggest drawback is that joint life insurance pays out only once. While buying two separate policies increases the price, it also means double the joint life insurance 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 joint 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.
Can you get joint life insurance if you are not married?
You can still get joint life insurance if you are not married! Joint life insurance typically pays out to a surviving spouse or partner when both joint policyholders die. This is important because, in the event of an unexpected death, this joint plan provides some financial protection such death benefit for your loved ones and children.
However, there may be certain limitations on coverage if you are not legally married. Some of these limitations include limited joint life insurance benefits such as death benefit, less coverage for your children's education, and funeral costs.
Make sure you know the details of joint life insurance if you are not married by checking with Canada Life or speaking to a financial advisor.
What happens to a joint life policy after divorce?
It's important to discuss joint life insurance with your partner if you're not married.
If you get divorced, joint life policyholders are often entitled to a payout at the time of death, but this may depend on where in Canada they live and whether there is an agreement between them that specifies how joint assets should be divided.
For example, someone who has children from a previous marriage might want their ex-spouse to receive some or all of the joint coverage for the benefit of those kids when he/she dies.
It can also depend upon what type of joint plan it is – some plans allow beneficiaries other than spouses while others do not. Speak with Legal Aid or with a financial advisor about any specific questions regarding divorce and joint life policies.
Why Would You Want Joint Life Insurance?
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 for an estate.
What Happens to a Joint Policy After Divorce?
What happens to your joint life policy when you and your partner call it quits?
Here’re your options:
- Maintain the joint policy together
You and your spouse can opt to maintain the joint coverage 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.
- 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.
- 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.
- Divide the joint policy into two separate policies
Some insurers offer a separation benefit that allows you to divide a joint coverage 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.
What is a life insurance rider?
A life insurance rider is an additional provision that can be integrated into your life insurance policy, allowing customization to better fit your distinct insurance requirements. These riders enhance your policy, providing extra benefits or coverage that go beyond the standard policy offerings.
However, it's important to note that these riders usually require an extra premium payment on top of your regular monthly premium, indicating a slight increase in your overall insurance cost. But, some insurers may offer certain riders at no extra cost as a part of their policy package, enhancing the value proposition of their offerings for their clients. It's advisable to discuss available riders with your insurance advisor to understand their implications and to tailor your coverage most effectively.
If you and your partner are looking for a life insurance policy that is simple, easy to apply for, and pays out only once, joint life insurance might be the right choice for you.
Keep in mind that because it is a simplified policy, joint life insurance doesn’t offer as much coverage as other policies might, so be sure to compare your options before making a final decision.
As you can see, couples in Canada have plenty of options to choose from. If you’re still not sure which type of life insurance for couples is best for you, let us help you. Send us an email or schedule a call to have our agent guide you through your options and help you pick a product that’s right for you.
Where do the proceeds go after the death of one spouse?
The distribution of proceeds after the death of one spouse depends on the couple's will or trust. If no such documents exist, state laws come into play. It's crucial for couples to have clear estate plans in place to ensure that their wishes are followed and their assets are distributed as intended, minimizing any potential complications or disputes among beneficiaries. Seeking professional legal advice can help couples navigate the complexities of estate planning and ensure a smooth transfer of assets upon the passing of a spouse.
Who owns the policy?
The insurance policy, though paid for by the customer, is technically owned by the insurance company, responsible for managing the policy and paying out claims. The customer makes premium payments and is the covered party. If the policyholder passes away during the policy term, a death benefit is paid to their chosen beneficiaries. Therefore, the customer, while not the policy 'owner' in a legal sense, enjoys the benefits of coverage such as death benefit.
Can I convert my joint life insurance policy to an individual policy?
The ability to convert a life insurance policy to an individual one largely depends on the specific policy type and the insurer's terms. Certain life insurance policies provide the flexibility to convert into an individual policy, while others might be restricted from such conversion.
Therefore, it's optimal to reach out directly to the insurance provider to clarify this. They can guide you through their conversion policies, if any, and help you understand any potential costs, conditions, or limitations associated with this process, ensuring you make an informed decision based on your unique circumstances and needs.
What is difference between Variable Life Insurance and Variable Universal Life Insurance?
Variable life insurance policies allow you to direct a portion of your premium to the insurance company's investment fund, which allows your beneficiaries to enjoy tax-free benefits if the fund increases.
Variable universal life insurance policies offer the same investment possibility as term life insurance but with some added benefits. These whole-life insurance allow you to invest the cash value and offer variable premiums and death benefit.