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Joint Life Insurance 101
Most people think about single life insurance policies when it comes to getting coverage, but it’s not the only option on the table. Joint life insurance is there for couples who want to get a policy that covers them both at the same time. But is it the best option? In this guide, we’re exploring joint life insurance and if it’s the right move for you and your partner.
What is a joint life insurance policy?
The name probably gives it away, but a joint life insurance policy is designed to cover two people instead of one. In theory, that makes it ideal if you’re a couple who would like coverage that looks after both of you simultaneously.
Joint life insurance is similar to permanent life insurance in that it stays in effect as long as you pay into the premiums. Also, like perm coverage, it can build cash value that grows completely tax-free–but that depends on how you structure your joint policy.
The comparisons with permanent life insurance don’t end there, either. You can also customize your plan with riders allowing you to shape the joint policy in a way that fits you and the person you’re getting the policy with.
How is it different from single life insurance?
The obvious place to start is with the people covered. Single life insurance covers one person, with the death benefit going to the beneficiary named on the policy. If you’re part of a couple but only one of you has life insurance and the non-insured person dies, then it’s essentially like no one had life insurance. The death benefit would only come into effect if something happened to the person with coverage.
With a joint policy, however, both people are covered. So if one person passed away, the rest of the family would still receive the death benefit. Joint policyholders also don’t need to be married, so you can get coverage with a spouse or domestic partner.
Joint life insurance isn’t as common as a single policy, so it can be harder to find. You’re also unlikely to find term joint life insurance, which means that most of the policies on offer come as permanent coverage.
Why should you consider joint life insurance?
If you’re a couple with children, a joint policy could make sense as it protects both of you at the same time. If something happened to your other half, but you survived, you would still be eligible for the death benefit because it’s a joint policy–though there are technicalities in how that works. For example, you have two primary options when taking out a joint policy: first-to-die life insurance and second-to-die life insurance.
A first-to-die policy kicks in after the, you guessed it, the first person dies. The surviving spouse is typically named as the beneficiary and will receive the payout if their partner dies. Many opt for this type of joint life insurance coverage because it can help the spouse maintain their way of life without their partner. With this policy, however, the coverage stops short with the death of the first spouse. If the partner wanted to continue life insurance protection, they would need to get a single policy.
Also known as survivorship life insurance, second-to-die only pays out when both partners pass away. Therefore, it doesn’t act as an income replacement and won’t help with things like mortgages and other debts. However, it does help with factors like offering liquidity to pay estate and inheritance taxes or as an asset to generate income for surviving dependents.
Does joint life insurance have any drawbacks?
The surviving partner will need to take out a new policy on first-to-die if they want their life insurance coverage to continue. However, should the joint policy come into effect 15 years after you initially took it out, you will be charged at your new age and therefore need to pay a higher premium.
Of course, you don’t need to worry about such a scenario with the second-to-die policy, but the death benefit isn’t released until you’ve both passed away. Premiums can also be more expensive for both of you if one partner has pre-existing health issues.
Lastly, a joint policy could cause issues should you and your spouse separate. Some joint policies don’t allow for the coverage to split into two individual policies, so things could become somewhat awkward should you and your spouse split up.
The benefits of getting a single policy
There is always the option of two single policies. Yes, single policies tend to be more expensive, but they give the policyholder more control over every aspect of the coverage. With a permanent policy, you can both grow your wealth with the cash value element while ensuring there is a death benefit to leave to your children–or whoever you wish for it to go to.
Plus, you get the benefit of accessing your wealth later in life tax-free from two separate policies, so there are no issues if you break up–and you can potentially build more wealth on two individual policies if you stay together.
In conclusion: joint or single?
A joint policy will work for plenty of couples, but it’s worth exploring all of the available options before making a final decision. You may find that two single policies work better for both of you and your family. You’ll have more control over the policy and can still make sure your beneficiaries are well looked after in the event of your death. There are some things couples should do apart, and a life insurance policy might just be one of them.
Either way, take a look at personal quotes for yourself and find out what your options are.