Joint Life Insurance?

Question

Is there such a thing as "joint" life insurance for two people that will pay the survivor should the other one die?

In other words, I'd like to buy a policy for myself and my wife for say, $1,000,000.

If I died, she would get the benefit, if she died I would get the benefit, then perhaps if we both died at the same time, it would go to some other beneficiary that we designate.

Basically, it seems like this should be a less expensive way to buy a life insurance policy since it would only have to pay off once as opposed to purchasing two separate policies.

I read about something called a "Survivors Policy" but this seemed like it was intended more to benefit the heirs after both the husband and wife die.

Answer 1

Yes, it's called a "first to die" policy. You are both covered as you suggest, but the policy only pays on the first death. Cheaper than two full policies, but more expensive than the standard single coverage.

Answer 2

A Joint First To Die (JFTD) policy is essentially two single policies bundled together. That’s why a death benefit can be paid on each life. Insurance policies have an administration charge built-in. With JFTD, you save one admin fee. Since actuaries love playing with numbers, they may translate the two lives into an equivalent single age, which should also lead to savings (e.g., male nonsmoker 30 + female nonsmoker age 30 = male nonsmoker 38, say).

JFTD is used mainly in the family market because of the cost savings from bundling. For larger policies, the admin fee (generally a flat amount) becomes a smaller percentage of the premium. So two single life policies are usually purchased. This gives more flexibility. For example, each spouse can have a different amount of coverage. Upon divorce or separation, the policies are already separate (may need insurance for other purposes then).

Some policies let you convert a JFTD policy into two single life policies under certain circumstances. That feature may be useful should your circumstances change.

Your advisor can help you find a good solution.

Answer 3

It is the ideal coverage to have if you are a US citizen and your estate is large enough to be liable for federal estate taxes when you both have passed away. Why first to die? The death benefits can be paid to an Irrevocable Life Insurance Trust whose assets are apart from the taxable assets of the family. The trustee of the ILIT can then (1) invest the death benefits in a second, single premium policy, for the surviving spouse if greater coverage is needed for a growing estate, or (2) place the death benefits into an SPDA and pay the interest to the surviving spouse as a retirement supplement. The principal would then be lest for the estate’s heirs to address estate tax issues. Traditional second to die does not have these options and may cause a problem A large second to die policy in an ILIT still requires annual gifts to keep in force after the first spouse dies. This may be difficult for a surviving spouse to maintain. For estate tax planning, first to die is an excellent product.