Joint Life Vs Joint Life Survivor Insurance...There is a BIG Difference.

Couples that purchase life insurance together really have two choices: they can purchase joint life insurance (a single policy covering two people), or they can buy separate policies. Joint life isn’t an option that most people are aware of. However, depending on the circumstances, it might be the correct choice. This article will discuss the primary differences.

For the purposes of getting your property & casualty insurance license, you may not need this much detail on life insurance—but expect questions about this topic on your insurance exam for a life and health license. In any case, a thorough explanation of the differences will be helpful regardless of what license you’re pursuing. Read on to find out what the big differences are between joint life and joint life survivor insurance.

What is joint life insurance?

A Joint life insurance policy is insurance that provides coverage to more than one person. Most joint life policies are permanent insurance policies, meaning that they don’t expire as a term policy would. And they have a cash value that may earn interest.

Given that they don’t expire, permanent insurance policies tend to be pricier than their term-specific counterparts, but the cash value does provide a nice benefit. Joint life policies can also be purchased for specific terms that expire, for example, after two or three decades. When buying life insurance, understanding the differences is of crucial importance. It determines both how long you’re afforded coverage, and how the beneficiary will be paid. It also has an impact on premiums.

Joint life insurance: How does it work?

Specific to joint life insurance, there’s another important difference to understand: whether the policy is a first-to-die insurance policy or a second-to-die policy—also known as a “survivorship” life insurance policy.

First-to-die life insurance

First-to-die joint life insurance acts in the same way that individual life insurance does: It is income replacement for the beneficiary when a spouse dies. With first-to-die life insurance, the benefit is paid when the first spouse dies. It’s a good option for people with significant financial responsibilities, like young children, mortgages, or anyone else who will need to make ends meet if a wage-earner dies. First-to-die life insurance lets the surviving spouse move forward by paying out a lump sum benefit.

Second-to-die life insurance

Also known as survivor or survivorship life insurance, the second-to-die life policy pays a benefit once both policyholders have died. Upon the second policyholder’s death, the benefit is paid to the beneficiary.

Second-to-die policies function best as a method for beneficiaries to pay for inheritance tax, estate taxes, or as a way for the policyholders to leave something behind for their heirs. A significant drawback of a survivor life policy is that the surviving spouse will still have to continue paying premiums after the first policyholder dies. However, if it’s a permanent policy, the cash value of the policy might help with premium payments.

When joint life insurance is the right answer

Joint life insurance policies are not as prevalent as individual life policies. For many couples, an individual life insurance policy might make the most sense because they’ll only be insuring a single wage earner. And it’s possible they don’t want to be bothered with some of the conditions that may come with a joint life policy.

However, as long as both spouses are going to be insured anyway, a joint policy may end up being cheaper than buying two individual policies, in some cases.

Joint life insurance policies can be the less expensive option for two reasons: First, with survivor policies, the insurance carrier knows it will probably be longer before the benefit is paid, given that both policyholders must die for that to happen. Second, it is usually cheaper for an underwriter to rate two individuals at the same time.

The argument against joint life

There’s a definite niche for joint policies, however, they only work best in particular circumstances. There are several issues when considering joint life.

If one spouse is in poor health, then joint life insurance may be more expensive.

For the reasons mentioned earlier, Joint policies can be cheaper than individual policies, but when one policyholder is in poor health that may not be the case. If you’re at all familiar with how life insurance premiums are calculated, then you know that the overall health of the individual plays a big role. With an individual policy this is normally a straightforward process, but because the carrier is underwriting the risk for two people with joint life, things can get a little more complicated.

If one spouse is in poor health or has a pre-existing condition, the cost of a joint policy may be higher than if the healthy spouse purchased an individual policy on their own.

Additionally, if one policyholder is significantly younger than their partner, the surviving policyholder might end up paying far more over the course of the life insurance policy than if they had just gotten an individual policy.

Beneficiaries also would likely need to wait longer for a death benefit to be paid in the case of a survivorship policy. Generally, benefits are paid upon the policyholder’s death, but it can potentially add decades until a benefit is paid if two lives are involved.

This can occasionally be avoided by adding first-to-die coverage to a survivor life insurance policy, where some portion of the death benefit will be paid upon the death of one spouse and the remainder when the second spouse dies. But, the surviving spouse still wouldn’t be paid the entire benefit, so it’s not ideal if the surviving spouse is counting on the full death benefit.

Understand that most joint life policies are permanent policies, and not term. Though it can be cheaper to get a joint life insurance policy rather than two separate individual permanent policies, a joint insurance policy might still be your best, most cost-effective option. Also, the cash value of the permanent policy cannot be ignored.

Finally, in the case of divorce, it may be worth a discussion with the insurance carrier at policy inception to see if they will include a rider that divides the joint policy into two individual policies in the event of a divorce.

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