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If you're in a long-term domestic relationship and looking for life insurance, you have a few ways to set up your coverage. While you could each buy your own separate policies, another option is a joint life insurance policy that you share. Here's what to know about using this strategy as life insurance for couples.
Key Takeaways
- Joint life insurance can be less expensive than maintaining two individual policies, as you're only paying for one possible death benefit versus two possible payouts.
- A first-to-die policy pays out when the first person in the couple dies. At that point, the surviving spouse would receive the death benefit and no longer have life insurance.
- A second-to-die policy only pays out the death benefit after both insured persons pass away.
How Does Joint Life Insurance Work?
If you and your spouse were to buy individual policies, you would have separate coverage for your deaths. So if you were to die, your policy would pay a death benefit, and if your spouse were to die, their policy would pay a death benefit.
With a joint life insurance policy, the death benefit is based on both your lives. There are two ways this can work.
It could be a first-to-die policy. With this type of coverage, the policy pays out when the first person in the couple dies. At that point, the surviving spouse would receive the death benefit and no longer have life insurance. Some contracts allow the surviving spouse to then set up an individual policy. However, the cost likely will be higher because they're purchasing at a later age.
Another option is a second-to-die policy. These policies only pay out the death benefit after both persons pass away. A joint life insurance policy could be temporary term coverage with a set expiration date, or you could opt for permanent coverage, which lasts as long as you keep paying the premiums.
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What Are Potential Advantages?
Joint life insurance can be less expensive than maintaining two individual policies. With a joint policy, you're only paying for one possible death benefit versus two possible payouts. As a result, insurance providers typically charge less for this life insurance for married couples.
The health standards and restrictions for these policies can also be easier to meet and navigate. Life insurance companies expect that two people combined will have a longer life expectancy than just one. If you or the other person has health issues, this could be a way to get coverage.
Some policies may include a rider that lets you divide the policy into individual ones later without needing to take a health exam. You would likely pay extra for this feature, but it could help keep open your future options.
What Are Possible Drawbacks?
With a first-to-die policy, the coverage ends after the first spouse dies. This leaves the surviving partner with no life insurance protection. While they might be able to buy their own policy at that time, the cost will likely be higher than if they had signed up for their own individual policy in the first place.
With a second-to-die policy, it can take much longer for anything to be paid out since both spouses must pass away for the death benefit to be triggered.
Another issue comes up when a couple separates or divorces. If the joint life insurance policy can't be split into two individual policies, one spouse would need to go out and buy their own policy. They would need to pass health underwriting again and may potentially pay more due to being older.
Lastly, this type of life insurance can be hard to find. While second-to-die policies are still quite popular, not many insurance companies offer first-to-die joint life policies.
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What Is the Purchase Process Like?
Buying a joint life insurance policy is similar to buying any type of life insurance. You and your partner will meet with a financial professional from a life insurance company. Together, you will fill out an application listing how much coverage you want, the type of joint life insurance you prefer and whether you want to add on any riders, such as splitting it into individual policies later.
As part of the application process, you and your partner will go through health underwriting. This may involve answering medical questions, seeing a nurse for a physical and submitting blood or urine for testing.
The insurance company will then review your application and decide if you qualify and at what rate. If you are happy with the offer, you can pay the premium to launch your joint life coverage.
How Much Coverage Should You Buy?
The amount of coverage you should buy depends on your unique needs and financial situation. One general guideline is that you should have seven to 10 times your annual income in life insurance coverage. You could also consider how much money you might need when the time comes, such as paying for a funeral and replacing an income. A life insurance calculator can help you crunch the numbers.
Another factor to consider is the age you are when you buy joint life insurance. A married couple at age 25 with no kids and a limited budget might start by buying a low-cost joint life policy. Perhaps they have children by age 30 and decide they want more coverage using individual plans. At age 35 or 40, they may want to add even more coverage based on their higher salaries and cost of living. There are many options, so consider your personal needs and what type of coverage would meet them.
For more help deciding whether joint life or another approach makes sense as life insurance for couples, consider speaking with a financial professional.
