Joint Life Insurance: A Primer

Joint life insurance plans cover two lives under one contract, providing financial support to your beneficiaries if you and your partner pass away. If you're considering a joint policy, it can be helpful to know more about the options available before purchasing a plan. Keep reading to learn more about these shared-coverage plans, including available options, pros and cons, and who may benefit from owning this type of policy.

What Is a Joint Life Insurance Policy?

Joint life insurance policies are single-contract plans that cover two lives, providing financial protection for the named beneficiaries. Joint plans have a single premium and typically only include a one-time death benefit, which may be paid upon the death of the first or second partner, depending on the type of plan you purchase. Joint plans are available to married couples, business partners, and domestic partners who can prove insurable interests, such as children or shared assets.

Types of Joint Life Insurance Policies

There are two main types of joint life insurance policies: first-to-die and second-to-die plans.

First-to-Die Policies

First-to-die policies pay a death benefit after the first partner dies. Funds are dispersed to the surviving partner, and they may be used in any manner the beneficiary chooses. The policy terminates after the death benefit is paid out, leaving the remaining spouse with no additional coverage, although some carriers may permit the surviving partner to convert the plan to an individual policy at a higher premium at this time. 

First-to-die policies may be beneficial to the following types of individuals:

• Young families
• Dual-income families
• Couples with large debts

First-to-die policies may also offer a viable coverage option to couples if one spouse or partner cannot purchase an individual plan at an affordable cost because of health-related issues.

Second-to-Die Policies

Second-to-die life insurance policies are sometimes referred to as survivorship insurance because they pay a death benefit only after both covered partners die. Funds may then be disbursed to dependents, charitable organizations or an estate, depending on who the policyholders have chosen as the policy’s legal beneficiary.

Because second-to-die life insurance plans may pay interest, some policyholders use them as a long-term investment. They may also function as a vehicle for transferring their wealth equitably and tax free to dependents. Second-to-die policies often appeal to parents, giving them the peace of mind of knowing their children will be secure if both parents die prematurely. Some couples also purchase second-to-die policies to cover estate or inheritance taxes.

If you purchase a second-to-die joint policy, the surviving spouse must continue to pay premiums after the other policyholder dies.

Permanent Versus Term Joint Life Policies

Both first- and second-to-die life insurance are typically permanent life policies, which means the coverage lasts for the duration of one or both partners’ lifetimes. However, term plans may be available through some carriers for individuals who only need or want coverage for a limited period of time. Permanent joint life plans often include a cash-value component, so the policy earns interest and acts like an investment.

When Should You Consider Joint Life Insurance?

If you and your partner want coverage but buying two individual plans isn’t in your budget, a joint plan may be a good option. Because joint policies are often less costly than maintaining two separate policies, they may be ideal for couples who can’t afford individual plans. Plus, because two lives are covered under a single contract, you’ll only have one premium, and will incur fewer administrative fees.

Purchasing a joint policy may also make sense for couples in the following situations:

• You want to secure an inheritance for your children or other dependents
• You and your partner care for a special-needs adult or other lifelong dependent
• You want to use the cash value as part of your retirement savings
• One partner has health problems that affect their insurability

Are There Disadvantages to Joint Life Insurance?

Joint plans may seem like a good fit for couples looking to buy life insurance, but it’s important to consider the disadvantages of this type of policy before signing a contract. Here are a few of the disadvantages that may come with joint life insurance:

• Joint plans can impact divorce proceedings. When policyholders separate, joint insurance plans may be difficult to split, making negotiations more complex and potentially delaying finalization of the separation or divorce.
• Premiums may be impacted by one partner’s health. If one partner is much older or has an underlying condition that makes them hard to insure, it can affect the premium of a joint policy. If this situation appies, you may pay a higher premium for your joint policy than you would if you’d opted for separate individual policies.
• Joint plans cover two lives but have a single payout. Whether you choose a first-to-die or second-to-die policy, a joint plan provides only one payout. For a second-to-die plan, that means the surviving spouse won’t receive a death benefit. For a first-to-die plan, it means the surviving partner is left with no coverage to ensure the financial protection of any dependents.

The pros and cons of joint policies vary depending on the type of plan you purchase. First-to-die and second-to-die policies are designed to fulfill two different sets of financial needs, and consequently, they have significantly different advantages and disadvantages.

Alternatives to Joint Life Insurance

If you want to provide life insurance coverage for a spouse without purchasing a joint plan, there are several alternatives:

• Spousal riders: These riders provide limited coverage for a spouse or partner. They may be added on to most individual policies at the time of purchase for a small additional cost.
• Supplemental spouse insurance: Some employers let workers add supplemental spouse insurance to their benefits package at a small cost. However, coverage typically ends if you leave your job, and these plans may deny coverage to high-risk spouses.
• Nonworking spouse policies: Small life insurance policies for nonworking spouses may be available at affordable rates. These policies are designed to cover the costs of childcare and housework in the event that the nonworking spouse dies.

Buying a Joint Policy

If you’re not sure whether a joint policy is the best way to satisfy your life insurance needs, it may be helpful to consult a financial professional. A licensed insurance agent can help you weigh the pros and cons of individual and shared policies so you can choose a suitable plan with a reputable carrier.