Joint Life Insurance
Joint life insurance policies cover two or more lives under a single policy. They are commonly used for couples and business partners and serve important estate planning and business succession purposes.
What Is Joint Life Insurance?
Joint life insurance is a single policy that covers two or more people (usually two). The policy pays a death benefit based on the death of one or both insureds, depending on the policy type.
First-to-Die (Joint Life) Policies
A first-to-die policy (also called a joint life policy) pays the death benefit when the first insured person dies.
How It Works
| Feature | Description |
|---|---|
| Insureds | Two or more people covered |
| Death benefit trigger | Death of the first insured |
| Benefit paid | Once, upon first death |
| Coverage after payout | Policy terminates |
Example
John and Mary purchase a first-to-die policy with a $500,000 death benefit.
- If John dies first → $500,000 paid to Mary (the survivor)
- Policy terminates—Mary is no longer covered
- If Mary dies first instead → $500,000 paid to John
Common Uses
| Use Case | Purpose |
|---|---|
| Income replacement | Surviving spouse receives funds to replace lost income |
| Mortgage protection | Pay off mortgage upon first death |
| Business partners | Surviving partner receives funds to continue business |
| Buy-sell funding | Cross-purchase arrangement between two owners |
Advantages
- Lower premium than two separate policies
- Simplified coverage for couples
- Ideal when primary need ends at first death
Disadvantages
- Survivor left without coverage after first death
- May need to purchase new coverage (at older age/higher rates)
- Less flexibility than separate policies
Second-to-Die (Survivorship) Policies
A second-to-die policy (also called survivorship life or last survivor) pays the death benefit when the last insured person dies.
How It Works
| Feature | Description |
|---|---|
| Insureds | Two people (usually spouses) |
| Death benefit trigger | Death of the second (last surviving) insured |
| Benefit paid | Once, upon second death |
| Coverage while one survives | Continues until second death |
Example
John and Mary purchase a second-to-die policy with a $2,000,000 death benefit.
- John dies first → No death benefit paid
- Policy continues with Mary as the remaining insured
- Mary dies later → $2,000,000 paid to beneficiaries (often their children)
Estate Planning Uses
Second-to-die policies are commonly used for estate planning:
| Purpose | Explanation |
|---|---|
| Estate tax payment | Provides liquidity to pay estate taxes after both spouses die |
| Wealth transfer | Passes wealth to heirs efficiently |
| Bypass marital deduction | Assets pass to spouse tax-free; tax due at second death |
| ILIT funding | Trust owns policy to keep proceeds out of taxable estate |
Why Estate Planning?
Under current tax law:
- Unlimited marital deduction allows assets to pass to surviving spouse tax-free
- Estate taxes (if any) are due when the second spouse dies
- Second-to-die policy provides funds exactly when estate taxes are due
Advantages
| Advantage | Explanation |
|---|---|
| Lower premiums | Less expensive than two separate policies or first-to-die |
| Easier qualification | Can often be issued even if one spouse is uninsurable |
| Estate tax funding | Perfectly timed for estate tax payment |
| Wealth transfer | Efficient way to leave legacy to heirs |
Disadvantages
| Disadvantage | Explanation |
|---|---|
| No benefit at first death | Surviving spouse receives nothing |
| Divorce complications | Policy structure may become problematic if couple divorces |
| Less useful for income replacement | Benefit not available when survivor may need it most |
Comparison: First-to-Die vs. Second-to-Die
| Feature | First-to-Die | Second-to-Die |
|---|---|---|
| Pays upon | First death | Second death |
| Primary use | Income replacement | Estate planning |
| Premium cost | Moderate | Lower |
| Who receives benefit | Surviving insured | Heirs (usually children) |
| Underwriting | Both must qualify | Often one uninsurable allowed |
Underwriting Considerations
First-to-Die Underwriting
- Both insureds must qualify individually
- Premium based on combined mortality risk
- Younger, healthier insured's rates help offset older insured's rates
Second-to-Die Underwriting
- More lenient underwriting
- Often issued even if one spouse is uninsurable
- Focus on the healthier spouse's longevity
- Composite rating based on both lives
Exam Tip: Second-to-die policies are easier to obtain because the insurer only pays after BOTH insureds die. This means at least one healthy person must survive, reducing the insurer's risk.
Split Options
Some joint policies offer a split option allowing the policy to be divided into two separate policies under certain circumstances:
| Trigger | Result |
|---|---|
| Divorce | Policy splits into two individual policies |
| Business dissolution | Partners receive separate policies |
| Death of one insured (first-to-die) | Survivor may get individual policy |
Key Takeaways
- First-to-die pays when the first insured dies—used for income replacement and mortgage protection
- Second-to-die pays when the last insured dies—used for estate planning and wealth transfer
- Second-to-die policies have lower premiums because benefit is deferred until both deaths
- Second-to-die policies may be issued even if one spouse is uninsurable
- Joint policies are more cost-effective but less flexible than separate policies
- Split options may allow separation upon divorce or other triggering events
A second-to-die (survivorship) life insurance policy pays the death benefit:
Which type of joint policy is primarily used for estate planning to provide liquidity for estate taxes?
Second-to-die policies typically have lower premiums than first-to-die policies because:
9.2 Modified and Specialty Products
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