A life insurance policy usually only covers one person. On the other hand, a joint policy will protect both policyholders. The primary goal of a joint life insurance policy is the same as that of an individual policy: to provide for your dependents if you or your spouse pass away unexpectedly. The policy’s payout can be treated as an inheritance, used to settle debts, or put toward any other purpose the beneficiaries see fit.
Most people who purchase a combined life insurance policy are married partners, but marriage is not a requirement. Any two people with an insurable interest—such as a mortgage or other joint asset—can apply for and be covered by a joint life insurance policy.
Types of Joint Life Insurance Policies
Both policies only pay out one death benefit, but the conditions under which that benefit is paid are different. You can also choose to combine two policies.
Joint First-to-Die Life Insurance
The coverage under a first-to-die policy is similar to that of a standard single-person policy. The death benefit from a combined life insurance policy is paid out to the beneficiary upon the death of one of the policyholders. The surviving spouse may put the money toward anything they need, such as a mortgage or daily living costs.
A key fact to remember about joint life insurance policies is that once one of the policyholders dies, the policy ceases paying out benefits. So, if you are a surviving spouse, you will need to secure your own individual life insurance policy if you wish to continue receiving benefits after your spouse’s passing. Depending on your current age and state of health, this can either be difficult or expensive to do.
Joint Second-to-Die Life Insurance
With joint second-to-die life insurance, the death benefit is only paid out after both covered parties have passed away. This policy is also called joint last-to-die or survivorship life insurance. The surviving partner will become the policy owner upon the death of the first insured person and will be responsible for continuing to pay premiums to keep both themselves and their dependents fully covered.
Moreover, the surviving spouse would receive no financial compensation. This is why this policy isn’t useful for paying off debt or replacing lost income. The primary motivation for purchasing these policies is to provide a financial cushion for future generations.
Combined Life Insurance
A joint life insurance policy is essentially the same as two individual policies. The policy covers both you and your partner and will pay out twice if one of you should pass away. One reason why should you consider purchasing joint life insurance is that you can cut costs by merging your and your partner’s policies into a single one. Most insurers offer discounted premiums when you merge two separate insurance plans.
Benefits of Joint Life Insurance
A joint life insurance policy offers several benefits that an individual policy doesn’t. People prefer this policy since it is:
Cost-effective
It may be cheaper for a couple to get a bundled/combined life insurance policy than two individual plans.
Estate preparation
The death benefit from second-to-die life insurance can cover costs like final expenses, funeral planning and service expenses, burial expenses., and inheritance or estate taxes.
Getting married is not a prerequisite
Partners in a committed relationship or a business partnership can get life insurance plans from several reliable insurance companies all over the country. You may have to provide proof of asset-sharing, though.
Costs of Joint Life Insurance
However, this policy might not be suitable if you want to achieve certain financial goals.
Higher premiums
Since this policy covers two people, it will cost more than an individual policy (given that you aren’t bundling two policies).
Rates are health-based
Pricing is determined by the health of both policyholders. That said, a second-to-die policy can be more cost-effective if one of the policyholders has health problems.
Divorce complications
Dividing the policy is complicated in the event of a divorce.
How We Can Help You
Our team at Franklin Life and Annuity is here to help you navigate the complications of life insurance. We work with reliable life insurance companies in Houston, TX, to ensure you secure a policy that covers all your needs at an affordable rate. We also offer burial expenses, and funeral service planning insurance.
Get in touch with us today to learn how we can help your loved ones have a stable and secure financial future.