Joint Life Insurance – Ideal for Married Couples
A rather uncommon, yet very helpful form of life insurance is joint life insurance, ideal for couples who wish to reduce the cost of individual life insurance or to ensure that their property is saved from taxes after their death.
Though not necessary, joint life insurance policies are generally bought by married couples, who share a single life insurance plan. There are two phases involved in a joint life insurance plan, viz. first-to-die and second-to-die.
First-to-Die & Second-to-Die
First-to-die pays to the surviving spouse, when the first dies, while second-to-die, also called survivorship, offers a death benefit to the heirs and pays them after both the spouses die.
Purposes of the Two
Both, first-to-die and second-to-die have rather different purposes. First-to-die is more ideal for young couples having children, to compensate the loss of income or services offered by the departed spouse. On the other hand, second-to-die is more useful for paying property taxes and/or providing fiscal legacy to children.
Types of Duration
The cover offered by a joint life insurance may be chosen to be limited number of years or a permanent one for an entire lifetime. The commonest is the later one, offering ‘cash value’ savings factor that grows. About 80% of consumers buy the permanent type of joint life insurance.
Economy Offered by Second-to-Die
Generally survivorship or second-to-die policies are offered by only a few insurers and are typically chosen by wealthy people who are concerned about the heavy property taxes which they would leave behind. In the year 2013, exemption on estate tax will be $5.25 million for an individual and $10.5 million for a married couple. This means that the property must cost more than this limit for the tax to apply. So, estate taxes apply to a very few people who are wealthy and those policies are quite large. They make up a comparatively small part of insurance market. $1 million joint survivorship policy would be thus 20% cheaper than two half a million dollar individual policies. Premiums and saving vary as per the insurer and the age and fitness level of the buyers.
Another benefit of survivorship policy is it enables a person who cannot be liable to an individual insurance policy, due to his or her health condition, to get protection, provided the other spouse is insurable.
Sustained Lifestyle Offered by First-to-die
First-to-die joint insurance is rather uncommon than second-to-die, but some reputed insurers offer it. It is an ideal product for married couples who can maintain a particular lifestyle, in case of death of one of the spouses, but is less costly than two individual policies. As the payout is only once, it is naturally lower than two payouts. However, the difference in the cost is not that substantial.
In Case of Divorce…
The unwanted, yet very important question, while buying a joint life insurance policy, is what if there is a divorce? Well, in some joint insurance policies, there is a clause that allows to split the policy into two individual policies, if there is a divorce. You will have to ensure that there is such a clause. Though the thought of divorce is unpleasant and you will not surely want to think upon it, things become difficult when it happens, especially if there is no provision of splitting of a joint life insurance policy. Therefore, if there is no divorce provision in a joint insurance, move on to another.