Joint Life Insurance Plans for Canadians

Getting joint life insurance can be an easy way to save cost on your total insurance premiums. A joint insurance plan covers two or more people’s lives with only one death benefit payout. Depending on how you set up the insurance you could save anywhere from 15% to over 50% in your monthly or annual insurance premiums.

Before you decide that getting a joint life insurance policy is right for you, this article will explore the pros and cons of buying group insurance. Also discussed here will be the most common uses for the two types of joint life insurance: Joint first-to-Die and Joint Last-to-Die policies.

The Advantages of Buying a Joint Life Insurance Policy

1.       Premium savings on a joint policy

If you buy a joint life insurance policy, the insurance company is only liable to pay out one death benefit, even if it is insuring two or more lives. The single payout does reduce the cost considerably on some policies, and can save you a lot of money over the many years you will pay the premium on a life insurance contract. Here is how an insurance company calculates the rates for a joint life insurance plan: A) If it is joint first-to-die life insurance, they will combine the two lives (typically a husband and wife) and come up with one older male client. If the couple were 35 and 33 respectively, the joint policy would be like buying a life insurance contract for a 40 year old man. B) If it is a joint last-to-die policy, the age calculation is for a younger man. Let’s take a husband and wife aged 55 and 54, the joint age would be like buying a policy on a 42 year old man. As you can see, the joint last to die would mean a big savings in premium because the joint age is so much less than the current age of the couple, meaning a much reduced premium cost.

2.       Survivor’s right to buy insurance without medical evidence

If one person in a joint life insurance contract dies, the death benefit is paid to the survivor, and then the contract ends. So what about the survivor? Do they still need to keep a life insurance contract? And if so, they are much older now and might have some health conditions making it harder to qualify for life insurance. The good news is that the survivor under these policies has the right to buy their own insurance contract equal to the face amount of life insurance they used to own in the joint policy, without providing medical evidence to qualify for the insurance. Most insurance companies allow you to make this purchase within 30 days of the joint policy being paid out, while a few others are allowing this purchase for 60 days from the end of the joint contract.

3.       Double payout for a “common disaster”

A common disaster is insurance industry terminology for both people who are insured under a joint life insurance contract dying within a very short time of one another or from the same event, like a car accident. If both people on the contract died together, or one died shortly after the other, the insurance company assumes that one of the two would have exercised their right to buy an equal amount of life insurance had they lived. Therefore, the insurance company pays out double the original death benefit to the beneficiaries.

The Disadvantages of Buying a Joint Life Insurance Policy

1.       Marriage or partnership breakdown can carve up a policy

When a married couple or business partnership purchases a joint life insurance policy for risk protection needs, there is a major problem if the union is dissolved. For most insurance companies, the joint life insurance policy will need to be divided between the two parties (ex-spouses). Each can keep half the insurance, but the full amount of coverage they had before is not given to each person. The cost will go up for having two separate policies vs. a joint policy, and if they need to top up their life insurance individually, they will need to qualify medically for additional coverage, plus pay the higher premium as a now older person for the top-up amount.

2.       Premium savings on joint first-to-die can be minimal

One of the biggest reasons people buy joint first-to-die life insurance is to save premium vs. two separate policies. Very often the cost of two separate policies can be very close to the cost of a joint first-to-die plan. If the additional cost is only around 10% higher, you can easily be justify the expense by knowing each person has their individual life insurance plan which they own, and will continue on, uninterrupted, if their partner were to die. No reissue of a new policy at older ages, paying higher premiums. No division of the policy in a marriage break-down. Much cleaner and more flexible when unfortunate events happen.

3.       No flexibility in coverage amounts with joint life insurance

Very often the amount of total life insurance needed for each person, like a husband and wife, is not the same. If one person is a higher income earner, they will probably need much more life insurance. With a joint policy, both people must have exactly the same amount of coverage. This results in the higher amount of need being the default amount of insurance for the other partner/spouse. If this insurance contract was broken up into two separate policies, and the correct amount of insurance is bought on each person, the total premium could be much less than a joint life insurance plan which is over-insuring one person.

Common Uses of Joint First-to-Die Life Insurance

Most commonly joint first-to-die life insurance is for pure risk protection of a married couple or business partnership. The most common type of insurance is term life insurance for immediate risk protection, vs. long-term estate or investment planning. Once the term need is over, like paying off the mortgage or raising children, the life insurance will probably be dropped.  It is not very common for permanent joint first-to-dielife insurance policies to be sold, as the long-term purpose for permanent life insurance is for creating equity as well as immediate risk protection. Usually couples or business partners buy separate policies so each person controls their own cash values and can ultimately accumulate more long-term growth.

Common Uses of joint Last-to-Die Life Insurance

Joint last-to-die life insurance is almost exclusively used for estate planning needs. It generates a large amount of tax free cash at the passing of the last person. In a marriage relationship, the spousal role-over clause in the tax act allows for all capital gains and taxable assets to pass to the surviving spouse and remain tax sheltered until his/her death. Upon the final death, the entire estate and all taxable assets are assessed by the Canadian Revenue Agency (CRA). In order to preserve the estate and possibly create a legacy for the next generation or used for charitable giving, joint last-to-die life insurance is a very useful and cost effective way to provide large amounts of cash flow for the estate. When comparing cost vs. benefit, a joint last-to-die policy can give you the highest guaranteed rate of return for your money in Canada today. The only thing is the payout is not for you – it is for your beneficiaries and your estate.

If you would like more information on whether or not joint life insurance is right for your situation, please feel free to contact us at Life Guard Insurance.

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