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Joint First To Die Life Insurance

December 5, 2013

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Posted by: glenn

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Category: Life Insurance

Joint first to die life insurance is a type of life insurance policy where two individuals are covered with the death benefit paid out on the first death.

This is typically considered by couples with the intention that such coverage is less expensive than purchasing two individual life insurance policies. In reality, this is not normally the case. In fact, I specifically recommend having two individual life insurance policies instead of a joint first to die life insurance policy.

Note – if you are looking for a quote for two individual coverages under one policy, please visit our spousal life insurance page and request a custom quote.

Fallacies About Joint First To Die Life Insurance

  1. It’s less expensive than having two individual coverages. In reality, the premiums on most joint first to die plans are less than 5% different than two individual coverages. The cost savings are either non-existent or very minimal.
  2. Joint first to die pays out only on the first death. This would be one reason why one might think it’s less expensive. However, many joint first to die policies will actually pay out two death benefits if both insureds die at the same time.
  3. Joint first to die pays only at the first death, so the second person could be left with no life insurance. However, today many first to die joint policies offer an option at the first death for the remaining insured to purchase new individual coverage.

While we may initially think that joint first to die life insurance is less expensive than having two individual coverages as the result of different coverage, in today’s marketplace it provides very similar coverage at similar premiums.

So what are the drawbacks to joint first to die life insurance?

Drawbacks to Joint First To Die Life Insurance

There are two serious drawbacks to joint first to die insurance compared to two individual coverages. In many cases, coverage and premiums will be similar. It is in the worst case scenarios where we run into some serious problems with joint first to die compared to individual coverages. And if you end up in one of these worst-case scenarios, a dollar or two of savings will not have been worth it.

  1. Inability to split policies. Should you ever need to separate the coverages with a joint first to die policy, doing so with some companies can be exceptionally difficult or actually impossible. But why would you ever need to separate your policies?Let me provide two examples. First, divorce is one clear reason why. Now none of us are planning for this, but clearly many Canadians do end up divorced. For those that are, separating their insurance polices can become paramount. Secondly, should you want new coverage in the future but one of the insureds has become uninsurable, you are pretty much stuck with the old policy. If you can’t separate the coverage and carve off the uninsurable person, then the healthy person is stick continuing on with the old policy.
  2. Age related benefits. With joint first to die insurance companies blend both parties age and sex and come up with what’s known as an Equivalent Single Age (ESA). Then they create a policy based on a male, non smoker of that equivalent age. Age based policy benefits are then based on this equivalent age. On joint first to die policies that ESA will be older than either of the actual insureds. This causes two problems that I’ll illustrate by example.Let’s take two people aged 30 and assume that the equivalent age is 40. If conversion (an important policy benefit in term insurance) drops off at age 65, then on individual policies these two individuals would have conversion for 35 years – to their age 65. For the joint first to die coverage they would lose the conversion privilege 10 years earlier because the ESA is 40, not 30. Secondly should the two insureds decide to convert their policy say at age 50, with individual coverages they would be seeing rates for a 50 year old. With a joint policy, they would be converting at age 60 (because again the ESA is 10 years older). Those 10 years can make a huge difference in premium – a general rule of thumb is that premiums double between ages 50 and 60.

In summary, the coverage benefits between a joint first to die benefits are actually much closer to individual coverages than you might expect. The premium difference is either nonexistent or minimal, which again is not what many people initially expect (there’s little or no costs savings). The serious drawback to joint first to die is that the policy is based on someone older than the insured so any age-related benefits are not as good as two individual coverages.

As a result, I recommend two individual coverages rather than joint first to die when the motivation is costs savings.

However there is good news – we can still get discounts on two separate coverages. Most companies will offer an administrative fee discount for two coverages under one policy. While we are unable to quote this live on our website we do have the ability to quote this discount over the phone or by email. Simply call our office at toll free, 1-877-344-4011 or complete the following form to request a call back: Request a multiple lives life insurance quote.

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