The more you learn about life insurance, the more questions you should ask. People commonly assume that the only way to purchase life insurance is to buy a term plan or whole life policy on themselves. In many cases, a single life insurance policy is the right choice. Yet, depending on your circumstances, a joint life insurance policy may serve you and your beneficiaries better than purchasing a single life insurance policy.
Life insurance is a long-term investment. Therefore, before making your final choice of life insurance policies, it is important to consider the advantages and disadvantages of your options in light of your overall long-term financial plans.
Which Is Better? A Single or Joint Life Insurance Policy?
Life insurance often first comes up in conversations with newlyweds. Yet, single people who have wealth or financial assets also need life insurance.
According to Canadian law, life insurance is tax-free money that can replace your income, provide for your children, pay off debts, pay for your funeral, or any other need your beneficiary has. Canadian law also allows an individual to add a common-law partner or spouse as a beneficiary to their life insurance policy.
A single-term or whole life policy is the most appropriate life insurance policy to purchase for most single people. Two separate individuals could purchase a joint policy, but each person must have a financial interest in the other. For example, two parties who jointly own property have a financial interest in each other.
Newlyweds and people who have been married a long time may opt for a single or joint life insurance policy. As another example, a married individual who has a child from a previous marriage may choose a single policy and name their spouse as the beneficiary and their child as a contingent beneficiary.
In the grand scheme of things, either a single or joint life insurance policy is better than no life insurance policy. Nonetheless, whether you are a single person or one half of a couple, you want the peace of mind in knowing those you leave behind have the necessary financial protection to carry on.
Understanding the Types of Joint Life Insurance
After the honeymoon is over, couples have the task of getting a joint bank account and combining their finances. Soon after the marriage, couples commonly make big purchases jointly, such as cars and homes. In addition to protecting material assets, life insurance protects your income, partner, and any children you may have.
There are two types of joint life insurance policies – first-to-die and last-to-die.
First-to-Die Life Insurance
With this policy, an insurance company pays the death benefit to the first person who dies. Once the death benefit has been paid, the surviving spouse has no remaining death benefit.
The benefit of a first-to-die policy is that it helps replace the deceased partner’s income. The downside is the surviving spouse would need to purchase a single life insurance policy to have coverage.
Last-to-Die Life Insurance
The second type of joint life insurance is last-to-die, which pays the death benefit upon the death of both partners. If one person dies before the other, the surviving spouse must continue paying the premiums. The beneficiaries receive the death benefit after the death of both partners, whether they die at the same time or years apart.
The benefit of this type of policy is that it can be used for various purposes. For example, the death benefit may be intended to pay for estate and inheritance taxes, fund the special needs of children, or equalize an estate among the heirs. A last-to-die life insurance policy may also list a charity as the sole beneficiary.
A whole life policy is best for last-to-die policies because if the term ends before the second partner dies, there would be no death benefit to pass on to the beneficiaries.
The Advantages and Disadvantages of Joint Life Policies
The advantage of a single life insurance policy is that the stated beneficiary receives the death benefit, which is usually the best insurance for a single person. The only disadvantage of a single life policy is someone must continue paying the premiums for it to remain in force.
Is joint life insurance cheaper than single? Yes, as there is only one premium.
The following advantages and disadvantages of joint life policies may make it clear whether single life insurance or couples life insurance is the better choice.
Advantages of joint couples life insurance:
⦁ Typically costs less than two single policies
⦁ Flexibility options for managing the policy if they divorce
⦁ Pays if either partner dies
Disadvantages of joint couple life insurance:
⦁ Both partners must have the same amount of coverage
⦁ It may be half as much coverage as two single policies
⦁ Both partners are required to have the same term regardless of income
⦁ The surviving partner will be without life insurance once their partner dies, causing them to pay higher premiums.
A joint policy may be best for couples with a limited life insurance budget or who wish to pay one particular debt, such as a large mortgage.
Single life insurance may better serve couples with children or couples who have multiple financial needs. Single life insurance is also best for couples that desire different terms or different death benefit amounts. Couples who have the room in their budgets to support two premium payments may also be better suited for single life insurance.
Final Thoughts
Everyone’s lifestyles and situations are uniquely different. Your status can change overnight if you become terminally ill or get into a fatal car accident. A married partner’s lifestyle may need to change significantly if they cannot rely on the right type of life insurance policy to continue living as they did before their partner died.
Purchasing a life insurance policy is part of sound financial planning for the future, and life insurance is something everyone who has financial assets should purchase.
If you are still weighing the pros and cons about which type of life insurance policy fits your needs, the licensed life insurance agents at Hometown Life Insurance have the answers. Give us a call at 289-606-0103 to get your free, no-obligation quote today!
