Life insurance is a relatively simple concept at its core: an agreement where the policyholder pays a monthly premium and, in return, has a benefit paid to their designated beneficiary in case of death.
Of course, there are many different approaches to life insurance that make policies tailored to individual needs and address a wider variety of circumstances and covered perils. Payouts for serious debilitating injuries are just one example.
Joint life insurance is another variation of the life insurance concept that may be especially useful for certain people, offering unique advantages not present in the most basic, standard policies.
Let’s look at what joint life insurance is, how it compares to standard life insurance, what it covers and how it can potentially help you secure the most relevant and useful type of coverage available.
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What Is A Joint Life Insurance Policy?
Joint life insurance’s major difference from a standard policy is coverage for two people instead of just one. While joint life insurance doesn’t necessarily have to cover a married couple or two people in a similar partnership, this is its most common use.
With this type of life insurance, the two policyholders receive a benefit payout when one or both of them dies, assuming the manner of passing is covered by the policy and depending on the specific kind of joint life insurance policy purchased.
2 Types of Joint Life Insurance Policies
There are 2 types of joint life insurance policies:
As the name implies, a first-to-die joint life insurance policy offers a payout for the surviving spouse following the death of the first spouse. The intent of this policy is to provide a financial resource for the person who will continue living without the support of a spouse. A first-to-die policy may be most useful in situations where both partners are actively employed or otherwise continuing to bring income into their household. This policy can reduce the financial burden associated with funerals and final arrangements, as well as facilitate an adjustment as budgets and income change for the surviving spouse going forward. In general, people of many ages and financial positions may find this policy to be an effective choice.
Survivorship or Second-to-die
Similar to the first-to-die approach, the survivorship or second-to-die policy also involves two people covered by a single life insurance policy. However, this type of joint life insurance doesn’t offer a benefit until both of the insured parties pass away. With no payout provided until the couple have both died, the basic intent of this policy is to provide financial protection for heirs. The reasons that a couple may choose to pursue a survivorship policy include difficulty for one spouse to gain access to a standalone policy and specific considerations related to estate planning, especially for wealthy families.
What Does Joint Life Insurance Cover?
In its most basic definition, joint life insurance offers coverage for two people and a payout after one or both of them pass away.
Standard, simple life insurance policies only offer a benefit upon death, and that’s the baseline to keep in mind when looking at the perils that joint life insurance covers. Anything outside of death, such as a permanent disability or a long-term terminal illness, will likely require a more involved policy or adding a rider that adjusts the standard policy.
Because life insurance policies vary greatly from one provider to the next, insurers have a variety of attitudes about policy variations and riders. Some insurers may offer a variety of options, while others take a more conservative approach.
Depending on individual needs, the normal approach to the policy may be perfectly suitable. On the other hand, a couple may need to add conditions to a joint policy, or seek out individual policies if their options for joint life insurance can’t easily be adjusted.
Joint Life Insurance Riders
Riders are a common tool for changing the terms and conditions of a basic life insurance policy in a way that is agreeable to both the policyholder and the company providing the coverage.
Riders can be used to increase the ways in which a policy benefits the person who purchased it, such as adding an increased benefit for unexpected, accidental death. They may also be employed to limit coverage in a way that makes the agreement more acceptable to insurers, such as limiting or removing benefits for tobacco-related diseases for a policyholder who actively uses that substance.
In the case of riders that offer additional coverage or protections, an extra cost should be expected. This extra cost can accumulate over time, especially with total life policies such as joint life insurance. Making this financial consideration is an important part of selecting a policy.
What’s the best way to find out what a joint life insurance policy covers?
Individual research and asking questions of insurance agents and support staff is often the best way to be absolutely clear about a specific policy before making the final decision to enter into an agreement with an insurance provider. Because each insurance company develops its own policies, it’s hard to make blanket statements about coverage.
With a little research and time, those interested in securing a joint life insurance policy can make sure they have a full understanding of what is and isn’t covered, as well as what options they have for adjusting basic policies.
Choosing a joint life insurance policy is an especially important decision because it represents what is ideally a long-term investment that will last until one or both partners pass away.
When Does Joint Life Insurance Make Sense?
An important starting point for planning around a joint life insurance policy is understanding which larger life insurance category it falls into. Joint life insurance is generally a permanent life insurance policy. That means the policy stays in effect and involves a recurring premium obligation until it is activated – or one or both spouses pass on in ways that don’t trigger a payout.
Permanent life insurance is significantly different than term life insurance, which expires after a set period. That means the obligation to pay a premium and any accrued value both disappear once the end of the term is reached. Understanding the differences between these two types of life insurance is a critical part of making an informed decision about purchasing a policy.
Joint Life Insurance As Part Of Your Financial Strategy
Joint life insurance can be a useful part of a broad financial strategy in a number of different contexts. A first-to-die policy can benefit a surviving spouse as well as any dependent children, helping to make up the financial ground lost from the deceased spouse’s income. The second-to-die policy offers a similar benefit to a couple’s heirs, which is especially important for minors and young adults who don’t have established career paths.
However, it’s important to note that other types of life insurance policies may be more effective in some circumstances. Financial advisor Dave Ramsay said it’s important to remember that while many couples have some type of income disparity between them, a joint life insurance policy only offers one payout. That could mean increased spending on premiums to provide protection for the lower-earning spouse’s income, as compared to taking out two separate policies that have premiums and payouts reflecting each partner’s individual income level.
Similarly, survivorship policies intended to benefit dependants can be less financially effective than alternative strategies, such as using a term life insurance policy and putting money toward a generally sound investment like a mutual fund.
Because the coverage offered by joint life insurance is more specialized, it needs to be carefully considered and contrasted with available alternatives. Of course, if one spouse faces extremely high premium costs on their own, due to factors like lifestyle or career-related risks, or a survivorship policy makes financial sense in a specific situation, joint policies can prove to be very good decisions.
What Else Should You Know About Joint Life Insurance?
Joint life insurance policies generally fall under the category of permanent life insurance, which regularly include a cash value savings component. This element of a life insurance policy involves what is essentially a savings account containing funds that can be used by policyholders in certain conditions. Depending on the specifics of an individual policy, those with a cash value savings component may be able to withdraw the money directly, take out a loan with the intent that it will eventually be paid back, or use some of the accumulated cash value to offset premium payments.
The cash value is only beneficial for living policyholders, as the accumulated funds go toward paying the benefit when the policyholder or holders pass away. For that reason, it’s important to understand the specifics around the cash value component of a policy and make thoughtful decisions about how to use it before it’s rolled into the benefit payout.
Is Joint Life Insurance Right For Your Needs?
Joint life insurance describes a very general life insurance concept that can be implemented in a variety of ways by policy providers. Just because an insurer has a joint life insurance policy to offer doesn’t mean it will automatically provide the right fit for your needs. To get a better sense of how an insurer’s specific joint life insurance products can support you in an effective, relevant way, keep these points in mind:
- Understand your personal situation: Make sure you know why you want joint life insurance and what you want to get out of it before you start looking into policies or seeking out quotes and getting in touch with insurers. You should be able to narrow down your choice between a first-to-die and survivorship policy on your own, as well as get a general idea of the level of coverage you need based on the combined income of you and your spouse.
- Ask plenty of questions: A dependable insurance agent or company representative can confidently answer questions or, in cases where they don’t know the answer, reach out to the right specialist or access the appropriate resources without major delays. Topics to consider include asking how a specific insurer’s joint life policies differ from the competition, what is and isn’t covered under the policy, and what options are available for customizing it.
- Compare policies and quotes: When it comes to insurance, there’s no reason to act on the very first quote or policy offer provided. Instead, those interested in securing a policy should identify a number of different providers they want to work with, then reach out to secure quotes. This relatively small amount of additional effort can easily pay off when the best possible policy or lower premium for an equivalent policy is found. Because joint life insurance is a lifelong purchase, ensuring costs stay low is especially important.
- Note the reputation and trustworthiness of insurers: Not all insurance companies offer equal levels of dependability or financial security. Making sure an insurer can fulfill its obligations is simply crucial. Because the payout of a joint life insurance policy may not come for many decades, a company’s long-term stability is especially important. Our own ratings of the best life insurance companies is a natural starting point. Checking for ratings from independent analyst agencies, such as Moody’s and AM Best, as well as consumer complaints and ratings submitted to organizations such as the Better Business Bureau, to gain a better picture of the insurance companies you may work with.
*While we make every effort to keep our site updated, please be aware that “timely” information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.