If you've never shopped for life insurance, you may be surprised by the number of options, from term life, permanent life, and whole life, to a multitude of other types, each offering something different. Another option is joint life insurance -- as the name implies, a joint life policy covers couples (married or not). Here, we break down the basics of joint life coverage and identify the pros and cons of this type of insurance.
What is joint life insurance?
Typical life insurance covers one person. Joint life insurance covers two people. That's not to say that joint life insurance pays out twice. Depending on which form of joint life coverage partners choose, it either pays out after the first partner's death, or does not pay out until both partners pass away. In a moment, we'll explain why someone would want to wait for a payout until both partners are gone.
Here are some key facts about joint life insurance:
- Where available, joint life insurance can be purchased as term life insurance or permanent life insurance.
- Anyone interested in joint life insurance may have to do a considerable amount of shopping around. Few life insurance companies sell joint life coverage.
- A joint life policy may make it possible for an older or unhealthy person to purchase life insurance.
- For most people, a standard term policy provides a more affordable life insurance option than joint life.
How do joint life insurance policies work?
With a joint life policy, two people are covered. A single policy binds together domestic partners, spouses, or even business partners with shared assets. A joint life policy pays out only once, and the partners in question determine when they want that to be. Depending on their wishes, they might purchase a "first-to-die" policy or "second-to-die" coverage.
First-to-die life insurance
First-to-die coverage means the policy pays out after the death of the first partner. A first-to-die policy is typically purchased by couples with families. The idea is to make sure the remaining partner and any children are cared for following the first partner's death. It may also be purchased by business partners, so that the partner left behind does not lose the business the duo built.
The downside of a first-to-die policy is that the remaining partner loses coverage once the policy pays out. Unless they have another life insurance policy, they may find themselves shopping for new coverage.
Second-to-die life insurance
Second-to-die life insurance may also be referred to as a "survivorship life insurance policy." Survivorship life only pays out when both parties have died. So why buy this type of joint life coverage?
This couples life insurance works best for those who wish to:
- Provide funds to a special needs child
- Leave money to heirs
- Pay estate and inheritance taxes after they're gone
- Leave money to a charitable organization
A second-to-die policy allows couples to provide money to whomever they want after they've both died. This type of policy is almost always purchased as a whole or universal life policy rather than a term policy. That's because of the fear that a term policy will expire before both parties have passed away.
As you can see, first-to-die life insurance is more about providing a partner or spouse life insurance coverage. At the same time, a second-to-die policy tends to focus more on providing death benefits to people and causes the couple care about.
Is it better to get joint or single life insurance?
There's no set answer to the question of which is better, joint or single life. In most cases, single life insurance is the more straightforward solution, but there are circumstances under which buying joint life insurance makes sense.
For example, suppose one partner is in poor health and has trouble qualifying for a single life policy. That person may have a better chance of qualifying for a joint life policy with a younger, healthier partner. That's because the insurance company knows they only have to pay out once. If the sicker partner dies and the death benefit pays out, the partner left behind gets the payment, but no longer has life insurance coverage.
This is where working with the best life insurance companies comes in. A great life insurance company helps sort through the circumstances of a person's life to come up with the type of policy that works best for that person.
Joint vs. single life insurance
Like most financial products, both joint and single life insurance come complete with pros and cons. While joint life insurance makes insuring two people less expensive than two single life insurance policies, it only pays out once. And while a joint policy may make it possible for a not-so-healthy person to land an insurance policy with a healthier partner, it's almost certainly less expensive for the healthy partner to get a policy on their own. Here are some other facts worth considering:
Joint life insurance pros
Here are few of the more-attractive traits of joint life:
- A first-to-die policy provides money to the surviving partner to cover their financial needs.
- A second-to-die policy allows couples to decide where they want their money to go after they're both gone.
- A first-to-die policy may make it possible for a less-healthy person to land a policy that includes their healthier partner.
Joint life insurance cons
Here are a few drawbacks of joint life:
- A first-to-die policy may lead to the surviving spouse shopping for a new policy of their own after the death of their partner.
- As solid as the relationship may seem when a duo first purchases a joint life policy, breakups happen, and it's not easy to divide an insurance policy.
- If one partner has health issues, it will likely lead to a higher joint life premium.
Who should get joint life insurance?
Joint life insurance makes the most sense for two groups of people:
- Young couples in which both partners work. If they can't quite squeeze the cost of two individual policies into their budget, it may make sense to purchase a less-expensive joint policy. That way, if one dies, the surviving partner is left with funds to help pay expenses.
- Established couples who want to ensure that their money goes to the people and causes they care most about after they are both gone.
The best life insurance for married couples
Typically, the best life insurance for married couples is a term life policy offering a high death benefit at a low premium. Because of the complexity of splitting a joint policy, the simplest solution is for each partner to have a separate policy.
Where can you buy a joint life insurance policy?
Some insurance companies sell joint life policies, although they often make it part of a permanent life insurance plan. Before diving in, it's essential to know that most financial experts advise against permanent insurance plans, due to their costs and complexity. And when it's time to purchase life insurance, it pays to make the right choice.
RELATED: Check out Motley Fool Money's guide to single premium life insurance.
