Joint life insurance: Considerations before you buy

Most people who buy life insurance get an individual policy, which only pays a death benefit if the covered individual dies. A couple – married or otherwise – has another option: Instead of buying separate individual policies, they can buy joint life insurance. While joint policies aren’t as popular as individual policies, this type of coverage can be an option to consider for people with certain types of needs. But is it right for you? This article can help you decide by explaining three things:

• How joint life insurance is different from individual coverage
• The two main types of joint coverage
• Pros and cons of getting a joint policy

An individual life insurance policy covers a single person, but joint life insurance covers two people – and only two. However, it only pays a death benefit when one of those people die (more on that below). While the joint policyholders don’t have to be married, the majority of people who get this type of coverage are either spouses or domestic partners. 

If you’re looking to buy joint coverage, you’ll find other differences as well. Because it’s a niche life insurance product, fewer insurance companies offer it, so you may have to look around a bit. And even among insurers that offer joint life insurance policies, you may not find many term and permanent life insurance options. In fact, few companies offer term life insurance as joint coverage for the simple reason that most of the couples buying it don’t want temporary protection: if the policy term ends before one spouse or partner dies, there’s no death benefit. So for example, Guardian doesn’t offer a term life insurance option for joint coverage, but offers a type of permanent joint coverage: EstateGuard® — a whole life insurance option.

Joint coverage can also be less expensive. Generally speaking, it costs more to buy two individual $1,000,000 policies than to get joint coverage for $1,000,000, for obvious reasons: With two individual policies, insurance companies have a potential payout of $2,000,000, but with a single life insurance policy for two individuals, the total payout is only half as large. 

Joint life insurance covers two individuals who will likely die at two different times. However, the policy only pays a single life insurance benefit. The logical next question is, “When is that benefit paid – after the first death, or the second death?” That’s why insurance companies offer two kinds of joint coverage. 

First-to-die life insurance

With this coverage, the death benefit is paid after the first person dies. It is typically purchased for income replacement for a younger family, with the surviving spouse named as the beneficiary. So, for example, in a household where both partners earn a similar income, a first-to-die policy can help the surviving person support a family while maintaining their lifestyle. However, once that benefit is paid out, there is no remaining coverage for the second person. If they want to continue having life insurance protection – for example, to provide a benefit for the couple’s children – he or she will have to apply for new coverage. First-to-die coverage is less common today and Guardian does not offer this type of coverage.

Second-to-die life insurance

This type of coverage is sometimes called survivorship life insurance, and the benefit is paid out only after the second (surviving) person passes away. It can’t provide income replacement for the surviving spouse – instead, the payout goes to the couple’s beneficiaries. Why get this type of policy? It’s typically purchased for estate planning and can be an option to help address concerns with the time and uncertainties of probate (the legal process for validating a will) while also providing: 

• Liquidity to pay estate and inheritance taxes
• Assets to generate income for other surviving dependents
• Estate equalization among heirs
• Funding for special needs children
   

It’s important to remember that the beneficiaries of a second-to-die policy don’t have to be the couple’s children or relatives. This type of policy can also be used to simplify the transfer of assets to a non-relative, such as a friend or business associate. For that matter, the beneficiary doesn’t even have to be a person – the payout can be used to leave a legacy for a favorite charity or religious organization, or as funding for a family trust. Guardian’s EstateGuard^® — a whole life insurance option, offers this type of coverage.

Second-to-die coverage for estate planning is typically purchased with a permanent (whole or universal life) policy. The reason is simple: if the policy term ends before the second covered person dies, no assets will be passed to beneficiaries.

This type of coverage is rare for a reason: there are more unknowns compared to individual life insurance,. This means you should have a clear reason for getting it, and before you buy joint coverage, consider exploring other permanent and term life insurance options. Having said that, here are the main reasons why you would – or wouldn’t – want to get a joint life insurance policy:

PRO: It can provide more affordable protection for young, two-income families

Many young families only buy individual life insurance for the primary earner because if that person dies, they need to replace the income they would have otherwise provided. However, when both spouses (or partners) earn approximately the same amount, the household is equally dependent on both sources of income. If either were to pass away, the other would need the same benefit amount to maintain the family’s standard of living. In this case, a single first-to-die life insurance policy may be more affordable than two individual policies for the same benefit amount.

PRO: It lets the surviving spouse have more control over estate planning

Couples often use life insurance to leave a legacy to loved ones or a charitable cause. A second-to-die life policy lets them delay the transfer of assets until both people have passed away. This can allow the surviving person to tap into the policy’s cash value if needed, or alter beneficiary designations if circumstances change¹. 

CON: The survivor may have to purchase additional coverage at a higher price

If a first-to-die policyholder passes away a decade after the coverage was issued, the other gets a payout – but no longer has life insurance protection. At that point, the surviving person will be 10 years older and possibly in worse health – and when he or she gets life insurance quotes for new coverage, the premiums may be significantly higher.

CON: If one partner has health issues, it can cost more than individual coverage

This life insurance is similar in some ways to group coverage issued for the smallest possible group of people – two individuals. Group life insurance policy costs are calculated based on the average health status and life expectancy of the group as a whole. If one person is significantly less healthy than the other, premium costs will be higher. Similarly, if there is a large age disparity, or one person is a smoker, policy costs for your “group” will go up. On the other hand, the less healthy partner may be able to secure coverage in this type of policy when they otherwise might not.

CON: You may have to wait a very long time for a payout

A second-to-die policy will only pay a benefit after the longest surviving spouse or partner passes away. That may not be an issue if you are buying a permanent policy for long-term estate-planning purposes, but it does mean that if you get a term policy there’s a good chance one of you will outlive the term length – and no one will get a payout.

CON: Joint policies aren’t easily divided when people split up

Planning for divorce makes many people more uncomfortable than planning for death. And while divorce (unlike death) is by no means a certainty, it does happen. Some joint life insurance policies may not allow the coverage to be split into two individual policies. If your insurance company doesn’t have a rider² (or optional provision) that allows policy splitting – and you don’t want to continue to have a policy that ties you to your ex – you may have to let the coverage lapse. You can try to get an individual policy at that point, but as an older applicant, your coverage may be more expensive.

How to buy a joint life insurance policy

Is a joint life policy the best option for your coverage needs? One way to find out more is by looking at some individual coverage alternatives. If you and your spouse or partner are still interested at that point, we suggest talking to a knowledgeable financial professional who can answer your questions and guide you to the right type of coverage. If you don’t have someone to discuss insurance with, Guardian can help you find a nearby financial professional who will take the time to learn about your situation and present you and your partner with available options that fit both your needs.

What is a joint life insurance policy?

It’s a life insurance policy for two people – typically spouses or domestic partners – but it only pays a benefit when one of them dies. Some policies are term life insurance policies, but most are permanent whole life insurance or universal life insurance.

What is the difference between joint life and survivorship life?

Survivorship policies, also called second-to-die life insurance, are a form of joint insurance coverage that only pays a benefit after the second person passes away.

Is it better to get joint life insurance?

This type of life insurance can be a fit for certain kinds of people, such as a young, dual-income couple or older, affluent couples with complex estate planning needs. However, it also has a number of limitations, so it may not be an option to consider for most life insurance customers. Speak with a financial professional to determine if this type of coverage meets your needs.

Why should you consider a joint life policy?

If both members of a couple need the same level of coverage, it may be less expensive to buy a single joint policy with a given face value (benefit amount) compared to two individual policies with the same face amount.  To get a better idea of actual costs, look for an insurance calculator, get a quote online, or speak with a financial professional.