When you think about life insurance, you probably think of coverage on a single life, and that is the most common form. However, there are several different types of life insurance, including joint life insurance.
What is joint life insurance?
Joint life insurance are life insurance policies that insure two people under one policy. There are two forms of joint life insurance, ‘joint first-to-die’ and ‘joint last-to-die’. The names aren’t pleasant, but they’re important.
Joint first-to-die pays a death benefit when one person in the couple dies. In the case of a married couple, this benefit could be used to pay funeral expenses, or replace the income of the partner who has died.
Joint last-to-die pays a death benefit only when both people covered die. This benefit is generally used to pay down and debts left by the deceased, or to pay any required tax obligations. Learn more about joint last-to-die life insurance here.
Joint life insurance vs. combined life insurance
It’s important to understand the difference between combined life insurance and joint life insurance. Combined life insurance is when you and your partner both get single life insurance policies from the same company at the same time. Combined life insruance generally saves you some money, as the admin fees are lower. Joint life insurance, on the other hand, covers two people with the same policy. The underwriting process is different, and the premiums can be very different as well.
With joint life insurane, the mortality rates for each person get combined using actuarial formulas. The result is an equivalent single age for a male non-smoker with similar mortality characteristics. We’ve included some examples below.
Note: Joint life insurance isn’t a product
You can’t buy something called “joint life insurance.” You get conventional life insurance:
- Temporary products such as Term 10, Term 20 or Term 30
- Permanent products such as Term 100, whole life or universal life
Instead of selecting single life mortality rates, you chose joint life. Let’s look at the uses.
The death benefit is paid at the time of the first death. This is useful for a shared obligation like repaying a mortgage. The alternative is getting two single life policies, which usually costs more. Here are examples for healthy non-smokers of various ages:
(Results may differ by company)
Since the probability of either person dying is higher than only one dying, the equivalent age is higher than the oldest age.
The death benefit is paid at the time of the last death. Assets such as RRSPs and a cottage can transfer to the surviving spouse tax-free. This defers taxes until the second death. Joint last-to-die is perfect because the death benefit is paid when the bills are due.
Here are examples for healthy non-smokers of various ages:
(Results may differ by company)
Since the death of both lives is further away than the death of either life, the equivalent age is lower than the youngest age.
The bottom line
Joint life insurance has less flexibility than separate single life contracts. That’s the tradeoff for the savings you can make. With a joint policy, each life has the same amount of coverage. If that’s not ideal, single life contracts may be better. Another solution is to get a joint policy that satisfies the overlapping requirements and adding riders for the lives requiring more coverage. And remember, just like joint bank accounts and joint mortgages, if things go south in your relationship, having money wrapped up in a joint life insurance policy can make things complicated.
It’s also not unheard of to take out two joint life insurance policies. A joint first-to-die policy could the income of a partner, while a joint last-to-die policy can help pay off debt when both partners die. The best thing you can do is to compare life insurance quotes and speak to a expert to asses your needs.