What Is Joint Life Insurance?
Joint life insurance allows couples to purchase a single policy that covers both spouses. Joint life policies are an option if both partners are young and healthy. In those cases, joint life might be a less-expensive option than each person purchasing separate life insurance policies.
How Does Joint Life Insurance Work?
Joint life insurance typically covers couples or other partnerships in the event of either partner’s death.
There are two types of joint life insurance: First-to-die and second-to-die joint life policies.
- First-to-die Joint Life Insurance
- A first-to-die policy pays a death benefit to the surviving partner when the other dies. This generally provides income replacement if the chief breadwinner dies.
- Second-to-die Joint Life Insurance
- A second-to-die joint life policy pays a death benefit to a beneficiary only after both partners have died. These are best suited to cover estate and inheritance taxes and other death-related costs left to children or other survivors.
Joint life policies are usually permanent insurance, meaning that you have coverage for as long as you pay premiums.
In rare cases, the policies may be written as term life insurance, meaning if one spouse passes away within the policy’s term — usually 10 to 30 years — the beneficiary receives a tax-free benefit equal to the amount of insurance you purchased. If you outlive the term, no benefit is paid.
How Divorce Affects a Joint Life Policy
Anyone considering a joint life policy should take the possibility of divorce into account — no matter how remote it may seem. Divorce can complicate the division of a joint life policy.
Most policies come with a divorce clause or rider. These allow the partners to split the policy into two separate policies if they divorce. Some policies require that the couple be divorced for a set amount of time before the policy can be split.
You should ask your insurer about including a divorce rider before purchasing a joint life policy.
First-to-Die vs. Second-to-Die Life Insurance
In short, first-to-die joint life insurance is set up to make sure your spouse can maintain your current lifestyle while a second-to-die policy protects your heirs’ legacy.
Second-to-die policies — also called survivorship policies — pay out a death benefit only after both partners have died. Survivorship policies are generally written for affluent couples aiming to offset estate and inheritance taxes.
For 2020, the federal estate tax doesn’t kick in unless your assets at the time of your death are at least $11.58 million. The estate tax rate can be up to 40 percent. So the coverage amount is generally for a large sum.
Only a handful of companies handle this kind of coverage and it is typically expensive. Joint life insurance, instead of separate policies, can afford large savings for wealthy couples.
First-to-die joint life insurance is less common but is sold by many more mainstream and well-known insurers. It pays a death benefit when either partner dies. But it only pays once.
It may be a cheaper alternative than separate policies to cover lost income if the main breadwinner dies. But that is not always the case.
Depending on your individual circumstances, separate policies may actually be cheaper. It’s wise to compare costs and discuss your options with a licensed professional insurer.
Pros and Cons of a Joint Life Insurance Policy
In some cases, joint life insurance can be less expensive than two separate policies. They tend to be best suited for newlyweds or couples who have not purchased life insurance.
You should weigh the advantages and disadvantages of joint life insurance against your personal circumstances to decide if it’s the right fit for you and your partner.
- Less expensive than separate policies if both partners are young and healthy.
- More coverage for lower premiums than separate policies.
- Can be modified to allow partial payout upon death of each partner.
- May be a bargain over separate policies if the couple is primarily covering the main breadwinner.
- More expensive if one partner has a health issue.
- Only one death benefit payout, even if both partners die at the same time, such as in an accident.
- Long wait times before death benefit payouts in second-to-die policies.
- Difficult to split in the event of a divorce unless it contains a divorce rider.
Joint life insurance policies are not as common as individual life insurance. Part of the reason is because these policies are not always a good fit.
You should discuss the advantages and disadvantages of joint life for your particular circumstances with a licensed professional financial expert to get the best advice for your situation.
5 Cited Research Articles
- U.S. Internal Revenue Service. (2020, July 15). Estate Tax. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
- California Department of Insurance. (2018, March). Life Insurance Guide. Retrieved from http://www.insurance.ca.gov/01-consumers/105-type/95-guides/07-life/life-ins-guide.cfm
- AARP. (2007). Life Insurance. Retrieved from https://assets.aarp.org/www.aarp.org_/articles/money/financial_planning/LifeInsurance.pdf
- New York State Department of Financial Services. (n.d.). Types of Policies. Retrieved from https://www.dfs.ny.gov/consumers/life_insurance/types_of_policies
- Arizona Department of Insurance and Financial Institutions. (n.d.). Glossary. Retrieved from https://difi.az.gov/mphaea-glossary