When one spouse or partner in a relationship dies before another, financial difficulties from loss of income are the last thing anyone wants to deal with.
Life insurance can be used for life partners or spouses to ensure that their loved ones or other designated beneficiaries are financially protected should one or both of them pass away prematurely. Joint life insurance provides that protection for two people under one policy, which can be more cost effective in certain cases. However, joint life insurance carries the risk of leaving the surviving party uninsured if the other dies. Joint life insurance policies are also increasingly difficult to find, especially as term life insurance premiums get more affordable over the years.
While joint life insurance policies may be a viable option in certain situations, experts say it’s usually not a good idea, and recommend individual term policies instead. Here’s what you need to know about joint life insurance.
What Is a Joint Life Insurance Policy?
Typically, a life insurance policy applies to one person. A joint policy, however, covers two individuals.
Like an individual life insurance policy, the main purpose of a joint life insurance policy is to financially support your loved ones after you and/or your spouse have passed away. The beneficiaries can use the funds from the policy as an inheritance, debt repayment, or anything they would like.
Although joint life policies are most common among spouses, you don’t have to be legally married in order to buy coverage. Joint life insurance policies are available to domestic partners as well as business partners, as long as you can prove insurable interest, like shared assets.
How Does a Joint Life Insurance Policy Work?
A joint life insurance policy is one contract covering two lives, with one premium being paid, says John Buenger, senior financial manager and advisor at the Rice Agency, an insurance brokerage firm in Maryland.
Joint life insurance isn’t just for married couples or romantic partners. You might also decide to get joint life insurance if you have a business partner. “Having joint life insurance ensures that the surviving business partner can continue to operate or make the appropriate company changes without the other,“ says Jessica Lepore, founder of Survested, a life insurance comparison site.
There are two types of joint life insurance — first-to-die and second-to-die policies. As the name suggests, the biggest difference between these policies is when the death benefit is paid out.
With a first-to-die joint life insurance policy, two people are covered, and when the first person dies, the death benefit is paid to the other person or the named beneficiary, according to Buenger.
If the living person collects the death benefit, they can use that money for any purpose. When one individual dies, that generally leaves the remaining living partner without coverage, Buenger says. Some insurance companies may allow the living person to convert their joint policy into an individual policy, but the premium may be higher, especially if the original policy was old. There also might be a tight time window, from 30 to 90 days after the death of the first insured, to do the change of contract, according to Buenger. And not all insurance companies may allow this conversion.
First-to-die life insurance is typically used by young families for income replacement, because the surviving spouse is able to collect the death benefit money tax-free.
A second-to-die policy pays the death benefit only when both insured individuals have passed away. This type of policy is often called survivorship insurance. The money is usually left to an estate or the couple’s beneficiaries, including children or charitable organizations.
“This policy is not best suited for people who need an individual death benefit to be paid at their death, regardless of when their spouse or partner passes,” says Joseph Sellitto, senior vice president at Bradley & Parker, Inc.
What Are the Disadvantages of a Joint Life Insurance Policy?
While joint life insurance can offer benefits in certain cases, it comes with complications and downsides that lead some financial experts to recommend avoiding it.
“It is, in my opinion, that each person should apply for their own individual policy so none of the pitfalls of a joint policy are realized,” says Buenger.
One of the biggest disadvantages to a joint policy is losing coverage after the first person dies. “If you can’t keep the policy and the carrier doesn’t offer a conversion option, you may have difficulty purchasing a new policy, especially if you had a change of health over the years,” says Buenger.
Divorce can also complicate matters. If married couples end up divorcing or separating, the other spouse would need to apply for a new policy and prove their insurability before a new contract would be approved and issued. “Divorce can also create a separate set of problems if one of the insured does not want to sign-off on the other spouse obtaining their own contract,” Buenger says.
In addition, joint life insurance policies are getting harder and harder to find. And with premiums for term life insurance coming down, joint life insurance may not be as cost effective as it used to be, according to Buenger.
Is a Joint Life Insurance Policy Right for You?
There are certain situations where joint life insurance might make sense.
One reason to buy joint life insurance for married couples is to get affordable coverage. “Typically, it is less expensive to get joint life insurance than two individual policies, and it can be a great option if it’s the only protection that fits your budget,” says Lepore. This type of policy can work for married couples who are only concerned with the financial burden of being a single-income household or taking care of needs after the surviving partner passes.
Joint life insurance is often cheaper than buying two individual policies. But things can get complicated when the first insured dies or if the couple separates.
However, be aware that in exchange for a potentially cheaper price, you’ll be taking on greater risk. “This strategy can backfire if one of the insured dies and leaves the other without coverage,” says Buenger.
Another scenario where it might make sense is when one partner is not as healthy as they once were, says Sellitto. “If the other spouse or partner is healthy, the insurance company may still provide coverage to the less healthy person since the death benefit [in a second-to-die policy] is only paid once at the time the second insured dies.”
Companies that Offer Joint Life Insurance Policies
Many of the experts we talked to mentioned that joint life insurance policies are increasingly difficult to find, especially as term life insurance premiums are dropping. However, there are a few major insurance companies that still offer this type of coverage.
State Farm sells a survivorship universal life insurance policy, which provides a death benefit once both insured individuals pass away. You can get coverage between the ages of 18 and 90, or 18 to 78 if you live in California. Coverage starts at $250,000 and there are a handful of riders you can add to the policy for more protection, including an estate preservation rider, level term rider, and waiver of monthly deduction rider.
Another insurance company that sells joint life coverage is Nationwide, specifically, a survivorship indexed insurance policy. It’s available for couples between the ages of 40 and 70, with a minimum death benefit of $100,000. Like State Farm, Nationwide also offers a variety of riders that can be purchased for increased coverage, like a long-term care rider, estate protection rider, extended no lapse-guarantee rider, and policy split option rider.