Joint life insurance is an ideal life insurance policy for couples. Many young families believe that life insurance is an essential aspect of financial planning. This is apparent by the fact that half of people in the United States have some type of life insurance coverage as of 2020. In Utah, only 48% of young couples in Utah have purchased life insurance for either spouse.
You or your spouse may have reasons for your reluctance to get an individual policy. Perhaps you do not qualify for a separate policy. This particular reason makes joint life insurance policies ideal for couples because they cover both people in a marriage or domestic partnership. Here is more information about joint life insurance to consider for your family’s financial security.
Types of Joint Life Insurance
Joint life insurance policies may either be first-to-die or second-to-die policies (also known as survivorship policies). Both types of joint life insurance policies may either be term policies or permanent policies. In general, term life insurance lasts for a specific frame, while permanent insurance lasts as long as you keep paying a premium. Learn more about these types of life insurance policies here.
The different types of joint life insurance policies are for couples in various situations. See which circumstance applies to your couple’s situation.
First-To-Die Joint Life Insurance
Young families may benefit the most from this type of joint life insurance policy. If you hold a first-to-die joint life insurance policy with your spouse or partner, your insurance provider will pay out your death benefit when either policyholder dies.
First-to-die policies are similar to individual life policies, which pay out after death to help the survivors with necessary expenses. As joint life insurance, this type of policy will help the surviving spouse with a payout to compensate for the income they lose when their spouse dies.
One problem you may face with a first-to-die policy is each policyholder’s income. Suppose you make significantly more than your spouse. You may be spending more to pay for your joint policy. If you end up being the surviving policyholder, your payout will replace your dead spouse’s income, which may turn out to be less than you have been spending.
Like an individual life insurance policy, you will need to purchase a new insurance policy once you get your joint life insurance death benefit. First-to-die joint life insurance pays for the surviving spouse. So, you will need to apply for new coverage if you intend to protect your children or other beneficiaries financially.
Second-To-Die Joint Life Insurance
Survivorship life insurance or second-to-die joint life insurance pays out the death benefit when both spouses die. As such, this policy does not provide income replacement. Instead, the payout goes to your surviving loved ones, whether they are your children or other beneficiaries.
You may consider this type of joint life insurance policy if you intend to direct your death benefit to estate planning. As a couple, you may have plans to cover gift tax or pay for estate tax to protect your loved ones financially during the transfer on death. For long-term estate plans, you would purchase a permanent joint life insurance policy.
One disadvantage of a second-to-die life policy is having to wait too long before anyone receives the policy’s benefit. Both policyholders must die with this type of joint life insurance before beneficiaries get the policy’s payout.
While this setup should not be a problem if you have long-term estate plans, you may risk losing the death benefit when purchasing a term joint life insurance policy. With a term joint life insurance policy, one spouse may end up outliving the policy length.
When To Get Joint Life Insurance
Joint life insurance policies are ideal if individual life insurance policies are out of your budget as a couple. Joint life insurance policies may also make more sense for your circumstances as a couple if one of you has issues qualifying for an individual life insurance plan.
You should also consider joint life insurance if you intend to leave an inheritance. A second-to-die joint life insurance policy may protect your loved ones from the estate taxes that they are likely to face when the court distributes the assets you leave behind.
Whether individual life policies are out of your budget or you have estate tax plans, you should work with seasoned life insurance agents to craft the best joint life insurance policy for your unique situation.
At Ipsen Insurance, we help couples determine which joint life insurance policy best suits their current living situation and preferences. We then find well-priced policies suited for couples beginning to plan their financial security.
Conclusion: What Is Joint Life Insurance?
Joint life insurance is a single policy that covers two people. This type of life insurance makes sense for a couple if:
- You have estate plans.
- You have difficulty qualifying for an individual life insurance plan.
- Separate life insurance policies are out of your budget.
A joint life insurance policy may either be first-to-die or second-to-die. The difference between these types is when you receive the policy’s death benefit. First-to-die policies payout when one spouse dies, making this policy a way to replace a couple’s lost income. Second-to-die policies payout when both spouses die, making this policy ideal for couples who intend to leave an inheritance.
Be sure to consult with a seasoned life insurance agent to determine whether a joint life insurance policy is ideal for your situation. Our insurance agents at Ipsen Insurance can help find a well-priced policy crafted to work in your favor and that aligns with your intentions. Contact our Utah insurance agency today to schedule an assessment.
Here is a quick overview of the life insurance policy components:
- Insurance Provider: The company that grants insurance policies. Also known as the insurer.
- Policyholder: The insurance policy’s owner. Joint life insurance always has two, and only two, policyholders. Both policyholders are also the insured or the ones who benefit from the policy.
- Policy Length: The lifespan of an insurance policy.
- Death Benefit: The amount of money an insurer pays when the insured passes away. Insurers will pay the death benefit depending on the type of joint life insurance.
- Premium: The fee that keeps a joint life insurance policy in effect.