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By Greg Rozdeba
Special to the Financial Independence Hub
When considering life insurance, the first thing that comes to mind is coverage for a single person. While that is the most commonly used option, there are many variants of the policy that you can use.
One of these variants is the joint life insurance policy. It is an option that covers two people instead of the one offered by a standard policy. These policies are usually targeted towards couples.
While having two separate policies is better overall, joint life insurance can come in handy in certain circumstances.
There are some important reasons for choosing joint life insurance. One of these is if your spouse does not qualify for an individual policy. It can also come in handy if you have people who depend on you or if you want to leave an inheritance for your heirs.
Most joint insurance policies are permanent and last your entire life. They contain an investment component that earns interest.
There are also a few joint policies that can be set up to last a certain amount of time but are rare.
Differences between Single and Joint Insurance policies
A single-life insurance policy provides coverage for a single soul, which is usually you or your significant other. The policy pays out if that soul passes away.
Conversely, a joint insurance policy provides coverage for 2 souls. It pays out if one of the policyholders passes away.
Joint insurance policies pay out only once when one of the covered individuals passes. This leaves the other person without coverage. Joint insurance policies cost more but provide more protection.
How do Joint Life Insurance policies work?
Joint life Insurance policies provide coverage for 2 people within the same policy. This is a cheaper alternative to buying two different policies. It also has its own unique set of bonuses.
Since it is cheaper, a joint policy will pay out only once, usually when the first person dies. In some cases, the policy can also pay out if one person is diagnosed with a terminal illness. The doctor must specify that person has less than a year to live.
The policy ends instantly when it pays out once. This leaves the other partner uncovered. This can be a problem if the surviving person is old and cannot afford a new policy.
Both the partners in a joint insurance policy are usually insured for the same amount. This ensures the payout is also similar when either person passes.
It is a fact of life that not all relationships will last forever. Under these circumstances, insurance companies sometimes offer a separation option. This allows the policy to be divided and continue without significant penalty.
Dual life insurance is an option in which there are two payouts, one for each death. These options are very rare though.
Types of Joint Life Insurance policies
There are three main types of joint life insurance policies:
- Combined Life Insurance
These policies provide coverage for both you and your partner. They provide the same benefits as purchasing two separate policies. This includes separate payouts for each death benefit.
The biggest reason for picking a combined plan over two separate policies is that they are the cheaper option. This is because insurance companies charge combined policies the same as a single policy.
- First-to-die Life Insurance
While it may be uncomfortable, it’s important to talk about these options. They could help safeguard your family’s financial future.
First-to-die is a policy that can be set up to pay out when the first person in the joint policy passes away. This means that when one partner dies first, the surviving partner can claim the benefits.
These policies are normally used as an income replacement option. Just like the normal term life insurance policies. They are used as a cover against the risk of losing the primary breadwinner of a family.
They can also be key for families that have obligations like debts and mortgages.
- Second-to-die Life Insurance
These policies are ideal when you and your partner wish to leave an inheritance.
These policies pay out once both the policyholders have passed away. These policies can be considered when planning for expenses after your death. These can include estate taxes, inheritance taxes, and leaving money to your children.
There is one big negative factor of second-to-die policies. This is that the surviving partner is still responsible for making monthly premium payments after the first person dies.
Pros and Cons of Joint Life Insurance policies
While they may seem like ideal options for a married couple, it is important to discuss the pros and cons of joint insurance policies.
It is undoubtedly easier for your insurance company to process two people at once compared to two people separately. Since you are saving the company time and effort by opting for a joint policy, you may be rewarded with a small discount.
If you are subscribed to a first-to-die or second-to-die policy, the insurance company can save some money. This is because they are responsible for only one payout, compared to two separate payouts for individual policies.
This leads to a joint policy being considerably cheaper. It is not likely that both policyholders will die during the term of the policy. This could lead to smaller discounts.
There is one big disadvantage of having a joint life insurance policy and that is if your insurance company doesn’t offer the separation option. A breakdown in the relationship could void the policy. This would then require you to buy a new single policy at a great financial loss.
While joint policies may not offer the same flexibility as a single policy, they make up for it by being more affordable. They provide the same coverage for both partners. This can secure your family’s financial future.
It is important to consider your options when making this decision. There are several factors to consider. These include your budget, the coverage, and your future needs.
It is important to do due diligence and market research before making a decision. Online services like Dundas Life can help answer any questions you may still have.
Greg Rozdeba is President of Dundas Life, which is on a mission to help people find the right insurance coverage. We use technology to offer personalized advice and the best rates on life insurance. Try our free online insurance calculator and see how much you can save today.
