Deciding between single vs joint life insurance
The Targeted Strategies Group
For Financial Success That Transcends Generations
Navigating the many nuances of life insurance policies can be confusing and complex for couples. But people in relationships, whether common-law or married, should sit down to answer a couple of crucial questions:
The financial future for couples will be brightest for those who take their time to determine the pros and cons of each policy and to decide which option best addresses considerations such as their family status, wealth, assets, and medical conditions.
What is single vs joint life insurance?
A single life-insurance policy pays beneficiaries when the insured person dies. Couples often name their spouse or partner as the beneficiary, and the pay-out from this policy often comes in the form of a tax-free lump sum which the beneficiary can use to pay for debts such as a mortgage, credit card or personal loan, as well as to manage household bills and living costs.[1]
Joint life insurance policies differ in that they protect two people under one plan. Essentially, it’s one life-insurance policy instead of two separate ones.
With joint life insurance, couples have the choice of deciding between “first to die” and “last to die” policies. Selecting “first to die” means that when one person dies, the death benefit pays the other partner. With "last to die" policies, the benefits don't pay out until both people in the relationship die.[2]
In “last to die” policies, couples will see a more affordable premium because the policies stretch much further down the road. Couples will contribute a lower amount than the eventual payout, generally speaking, but the longer they live the more they will have contributed.?[3]
With both individual and joint policies, the death benefit reflects a person’s insurability. This is determined by factors such as income, expenses, career, finances, and other personal details. In addition, age, health, and smoking status determine what the premium will be for the coverage amount.
Pros and cons of single vs joint life insurance
What attracts most couples to hold separate life-insurance policies is that claiming on one of the policies leaves the other one intact. So if one partner dies, the other can remain covered.
Having two policies allows different amounts to be determined for each person. After all, one spouse may be the main breadwinner, so a larger sum can be laid out in that plan. Why? If something dire happens to that income-earner, the family will face a higher financial shortfall and will need the extra help.
As for drawbacks, if a couple decides on two single life-insurance contracts, the fees could be higher compared to opting for a joint policy.
Turning to joint life insurance, the perks include:
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Final thoughts on choosing the right plan
Most couples might be more comfortable getting single life-insurance policies. But joint “last to die” life-insurance policies could be attractive to high-net-worth couples to ease the burden of estate taxes for their beneficiaries.[6]
Also, if the couple has children, attention has been paid to the implications of a joint policy for them. For example, disabled children require continuous long-term care, and if one spouse dies, the surviving spouse may also need a life-insurance policy to make ends meet for the children.??It could be more difficult for an older spouse to get a new policy after the “first to die” policy terminates.[7]
While individual and joint polices both boast their benefits and drawbacks, couples have to decide for themselves what fits their lifestyle, age, medical conditions, and family. Each option has its risks, but couples that go into this decision well-armed with knowledge and foresight will find peace of mind with any plan they choose.?
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[2]?https://www.businessinsider.com/personal-finance/life-insurance-spouses#life-insurance-options-for-couples