What’s Joint Life Insurance? Pros, Cons + How It Works

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You may feel like it’s super confusing finding the best life insurance policy for your particular needs. Your family deserves the best life coverage possible for an affordable price. Only you and your partner know for sure how much life insurance you may need or what you are willing to pay for the protection. 

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During your deep dive into all things insurance, you may stumble across joint life insurance. So what is it all about? 

Joint life insurance is a unique coverage option that can work for young families, wealthy couples, and business owners alike. Read on for more insights into how joint life insurance works.  

What Is Joint Life Insurance?

Joint life insurance (also known as survivorship life insurance) is a life insurance policy that protects two lives, not just one. Joint life coverage is typically a permanent life policy that will last your whole life and has a cash value component that earns interest. The same as other life insurance, a joint life policy will provide a financial benefit to your family upon your death. 

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What’s the Difference Between Single and Joint Life Insurance?

The difference between single and joint life insurance is simple. A traditional, single life insurance plan is meant to cover only one person’s life (e.g., you OR your spouse) and will pay a death benefit upon that person’s passing. 

On the other hand, a joint life policy insures two lives simultaneously. That could be you AND your spouse. 

Joint life insurance offers coverage for two people on one policy with one premium amount. 

How Does Joint Life Insurance Work?

Joint life insurance is meant to cover domestic or business partners—both can leave behind a lot of responsibilities for the surviving partner. To keep your family or business from falling apart financially upon your demise, it’s a good idea to explore options like joint life insurance. 

Premiums

Obviously, it’s very appealing to insure two lives and only pay one premium. In fact, that’s really one of the top reasons why partners would buy such a life insurance product. New businesses and young families usually don’t have a lot of extra room in their budget. Rather than avoid buying life insurance at all, it’s worth exploring joint life insurance. 

Each life insurance company evaluates their applicants and then assigns a premium amount based on the insured’s risk. As you probably know, final pricing will depend on things like your age, your partner’s age, health history, and other factors. 

The amount of life coverage you request will also influence the final premium amount. Joint life insurance face amounts tend to have a higher dollar amount, starting around $250,000 to over $1,000,000. In fact, most joint life plans are in excess of $1,000,000 because of the partners’ wealth and responsibilities.  

Let’s say you and your spouse are both 50-year-old non-smokers in good health. You decide to take out $1,000,000 in permanent joint life insurance. This type of coverage could cost you and your spouse around $1,300 per month, which breaks down to $650 per month per insured. Remember, permanent joint life insurance does have a cash component, which makes the policy an effective financial resource.

Payouts

Death benefit payouts work a bit differently depending on the type of joint life insurance policy.

First-to-die life insurance: The insurance company pays the face amount when one insured dies. The remaining insured will receive that lump sum death benefit. After the death claim has been paid, then the life insurance policy is voided. The remaining partner will no longer have life insurance and will need to shop for his/her own coverage. 

Second-to-die life insurance: This type of joint life policy is also called “last survivor” or “survivorship” life insurance. After the first insured passes away, there will not be any benefit payout. The second insured continues to pay the policy’s premium until he/she dies. At that time, a death benefit will be paid to the named beneficiary. 

Second-to-die coverage is really meant to protect personal property or corporate assets. Mostly wealthy couples or business owners rely on this plan type to help manage inheritance taxes. 

What Are the Pros and Cons of Joint Life Insurance?

We’ve already ticked through a few of the advantages and disadvantages of joint life insurance. Let’s run through a few more of joint life’s pros and cons. 

Pros 

Estate taxes:  The death benefit can be used by your beneficiary to pay any outstanding estate or inheritance taxes. Your heirs won’t have to sell important assets, like the business or family home, to cover the death tax. 

Special needs dependents: The death benefit from a survivorship life insurance policy can be used to help support your dependent, special needs child. Normally you and your spouse will want to establish a trust fund for your special needs kid to avoid negatively impacting their government benefits.

Leaving a legacy: The death benefit from survivorship coverage can be left to your favorite charity, like a university, church, or other nonprofit. Depending on the value of your life insurance, the donation that’s made in your memory could be quite substantial.  

Premium savings: The extra cost of purchasing a secondinsurance policy for a spouse or business partner might deter you from buying coverage at all. This is particularly true if your partner has health issues which would make underwriting challenging and drives up the price

Life insurance underwriters generally average the ages of both insureds. This means if you are 30 years old and your spouse is 40 years old, the underwriter could price your policy at the average age of 35 years old. Your spouse is essentially receiving a nice discount on their life insurance which they would not get if he/she applied for a single life plan. 

Cons

Health issues: There’s definitely some savings for two lives to be covered under a joint life insurance plan. However, if you or your partner have medical issues, then the other partner will end up paying more on a policy with someone in poor health.  

First-to-die plans: Under this type of joint life coverage, the policy is terminated once there is a benefit paid out for the first insured to die. This means the other person will have to find their own life insurance.  

Second-to-die life insurance: Under this type of joint life plan, your beneficiaries must wait until the second insured dies before collecting any benefits.  

Separation: The divorce of spouses or disputes between business partners can really complicate a joint life insurance policy. In this scenario, the insured may have no choice but to cancel the coverage and purchase their own individual policies.

Who Typically Purchases Joint Life Insurance?

Joint life insurance can be an amazing financial resource for families. Ask yourself the questions below to figure out if joint life insurance is worth exploring.

  • Do you wish to leave a legacy behind for your family or a favorite charitable organization? 
  • Do you own a family business? If so, do you know how you’ll split ownership among your children? 
  • Do you have a special needs child who will require lifelong financial assistance? 
  • Will your heirs have to pay estate taxes upon your passing? 

In the United States, the estate of a dearly departed person may come along with a federal estate tax. This levy is only applied if the deceased’s assets surpass the federal estate tax exemption amount.  

As of 2020, estate taxes were applicable on estates worth $11.58 million or more for an individual person, and $23.6 million for a married couple. Keep in mind, any transfer of the departed’s assets will be subject to the estate tax, including life insurance benefits. 

Are There Popular Alternatives to Joint Life Insurance?

End-of-life planning can include a full portfolio of group and individual life insurance options. Most Americans are familiar with the small dollar, term life insurance provided by their job. Another common choice is traditional permanent (whole) life insurance. 

Individual life insurance

Although there are lots of great advantages to joint life insurance, you may find that you and your partner will be better off with a traditional individual life insurance policy. You can select from dozens of different policy designs, permanent or term for instance.  

If you fit any of these descriptions, then you may be better off with individual coverage: 

  • You have a more generous budget and can afford slightly higher premiums for your own coverage. 
  • You and your spouse (or partner) want individualized coverage amounts and policy terms.
  • You would like your surviving partner to maintain their own life insurance even after you pass away. 
  • Your family has multiple expenses (e.g., education, young children, home) that will need to be protected immediately upon your demise. 

Two Covered Might Be Better Than One  

Only you and your partner will ever really know which type of life insurance will fulfill your end-of-life wishes. Paying off a large mortgage, covering college expenses, shoring up a family business, or leaving a charitable donation may be a few items on your bucket list.  

Talking with an experienced insurance agent or financial planner can help you decide if joint life insurance makes good sense. 

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