Both you and your spouse need insurance, so why not purchase joint life insurance? Here are 10 things you should know before making your decision.
Traditionally, life insurance was designed to protect your dependents financially after your death. Usually, these policies covered the main breadwinner in the family.
The one who makes the most money in the family is typically covered. This would seem to make sense, but there are other factors to consider.
There are consequences no matter which partner dies. Even if one's partner makes less money or no money at all, they may take care of the home or be responsible for caring for the children.
Regardless, the family is changed no matter who dies. That's why it's a good idea to consider joint life insurance which considers and covers both partners.
Could this type of life insurance be right for you? Let's take a look.
1. Making Equal Contributions with Your Joint Life Insurance
In today's society, most families need two incomes to make ends meet. Without both incomes, the family's lifestyle would suffer.
For this reason, many couples choose to insure both partners with joint life insurance. With this type of insurance, the partners are insured equally.
But whether you are the breadwinner or a stay-at-home mom or dad doesn't matter.
Both partners' work is valuable whether they bring in income or not.
If the fulltime parent passed away, their partner would incur an additional financial burden for childcare. They would have to either hire a nanny or pay for daycare or work fewer hours to be with the children. The cost of raising a child has nearly tripled over the last two decades and is expected to skyrocket even more over the next two.
When considering circumstances such as this, joint life insurance makes sense for some couples.
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2. A "First Death" Policy
This type of joint coverage pays out after the first death occurs.
At this point, the living partner who receives the payout would no longer have life insurance coverage.
If the surviving partner wants a new policy, they could purchase a single policy. But it's worth mentioning that policies are more expensive for older individuals and for people in poor health.
If both partners die at the same time, there is still only one payout, but in this case, the payout goes to a designated beneficiary.
3. A "Second Death" Policy
With this type of joint coverage, there's only a payout after both partners have died. Many people choose this type of policy and have the payout put into a trust for children or family members.
As with any important decision, it's important to consider the unique needs of your family situation and to consult an insurance professional before making a decision about what type of policy is best for you.
4. Comparing Prices
Having individual life insurance policies will generally be more expensive than purchasing joint life insurance. The individual policies offer more coverage, so this elevates the price.
The price difference is small though, so that shouldn't be your only determining factor when deciding what type of insurance coverage you need.
Be sure to consider what is best for you and your partner and what type of coverage makes sense for your family too.
5. Maintaining a Lifestyle
A first-to-die policy can help ensure your partner can carry on in a similar lifestyle they are used to. It pays out once the first partner in the relationship dies.
This could be a good choice if you want to pay less than what two separate policies would cost but want to make sure your partner is protected.
The first-to-die policy is often a choice of young families, those with children, or those with outstanding loans. The economic impact of losing a partner is far greater than the price of a joint policy.
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6. Protecting Your Heirs
Second-to-die joint life insurance is often a choice for more affluent couples concerned about leaving their heirs with large inheritance taxes to pay.
Purchasing this type of joint policy is also cheaper than two individual policies.
This type of policy can also help the partner who has a health condition get life insurance coverage they may have not qualified for otherwise. If one partner is in good health, the partner who is less healthy is also covered.
7. Business Planning
Joint life insurance can be beneficial to business owners as well. For family-run businesses, it can help ensure the business will be transferred to those who want to continue to run it.
Business partners who are unmarried can also purchase joint coverage to protect their business interests.
8. Cash Value
In addition, the account value could be accessed to help with educational expenses, retirement income, or other personal needs. Withdrawals or unpaid loans do decrease the overall value of the policy, however.
9. In Case of Divorce
If you're considering purchasing joint life insurance, you must consider what will happen in case you get divorced. Although an unpleasant topic, it is the reality for many couples today. When we revisited the statistics in March of 2022, a whopping 42,933 couples had divorced in 2020.
If you are divorced, there are restrictions on how the policy can be distributed. Insurance providers can add an option that the policy can be split, but there are provisions regarding when this can take place after the divorce.
You must be divorced for a certain period before a joint policy can be split.
And if one partner decides they will not pay their share of a joint policy, there will be issues as well.
Most experts agree that before purchasing a joint insurance policy, you should make sure to include a divorce clause whether you will ever need it or not.
It just makes sense. And this can save a lot of headaches in the event that a divorce does occur.
10. Joint Policies are Best Suited for Young Families
New families with children are the best suited for joint policies. The coverage spans their entire childhood, until they reach adulthood. Expect a policy to cover 10 or 20 years. In the unfortunate event of one parties passing, the payout for one person would help to cover the costs of their lost income - which can be devastating when trying to raise children and save for their future.
Joint Life Insurance: Consult a Professional
Many couples look to joint insurance policies to lower their insurance costs while protecting their partner. Some choose joint insurance to ease the inheritance taxes for their future heirs.
For many people, joint life insurance is the best option.
If you are considering life insurance for your family, you want to make sure you are getting a great policy for a fair price. We'd love to help and answer any questions you may have. Contact us today.