If you’re in your late twenties or early thirties, you’ve probably started thinking about life insurance. And if you’re married or have kids, joint life insurance is probably at the top of your list.
But what is it? Is it worth your money, and should you choose it over single life insurance? Read on to find out.
What is life insurance?
A contract between you and a life insurance provider is known as a life insurance policy. They agree to pay a death benefit (a lump sum of tax-free money) to someone you pick if you die. In exchange, you agree to pay them an insurance premium on a regular basis: (a small amount of money over time).
You and your partner decide on the quantities of money coming in and out, as well as the time frames involved, but that’s it in a nutshell.
What can a life insurance claim payment be used for?
Your beneficiary (the person you choose to receive the payout) is allowed to utilize the death benefit from your life insurance in any way they see fit. The death benefit is exempt from taxation. They can put the money towards:
- Covering day-to-day expenses so that their family can maintain a similar standard of living (groceries, bills, rent, etc.)
- Pay off your credit card debt (mortgages, lines of credit, credit card bills, business loans, etc.)
Invest in the education of their children.
- Make a significant donation to their favorite charity.
- Make arrangements for their funeral.
- Keep their company safe.
Do I need life insurance?
Perhaps a better thing to ask is whether the people in your life require it.
Insurance is used to pay off debts (personal or business-related) and provide a source of income to someone who relies on you but is no longer alive.
By purchasing life insurance, you can secure assets for your family’s future by investing in a secondary source of income. Without life insurance and the security of a death benefit, you’re putting all of your family’s financial eggs in one basket: your ability to produce an income while you’re alive.
You may believe you have life insurance through your employer’s group benefits, but such policies must be scrutinized carefully to ensure they cover all of your needs.
How much life insurance do I need?
You should purchase the most comprehensive life insurance policy you can afford. When they die, most people want to leave a multimillion-dollar fortune to their family and loved ones. However, most people are unable to do so due to budgetary constraints.
Determine what you consider to be an “affordable premium.” Create a budget to examine your family’s existing and future financial needs, as well as your current liabilities and debts, as well as any costs related to your death. This will show you what kind of coverage you should get and how much it will cost.
When should I buy life insurance?
Life events necessitate the purchase of life insurance. Purchasing a home, having children, and marrying are all signs that you have people in your life who rely on your salary to maintain their standard of living. Because insurance premiums climb as you get older, buying it earlier in life can save you money.
What is Joint Life Insurance?
Joint life insurance is a life insurance product that’s built for two. It requires only one application and pays out only once. If you are looking for life insurance for couples, joint life insurance policies could be a good choice.
Why? Glad you asked.
Joint life policies usually costs less than two separate policies for two reasons:
- The payout is made only once
- Married people live longer than singles (as a result, insurance companies offer them lower rates)
Since joint life insurance is a special type of life insurance, it is recommended to talk to an advisor before getting a policy.
In the case of a joint life insurance policy, you and your partner will be covered for the same amount, and the life insurance policy will end once the insurance company pays the death benefit to your beneficiaries.
Joint life insurance policies are usually permanent. That is, the life insurance policy stays in force until one or both of you pass away, depending on its terms. Depending on how your permanent joint coverage is structured, it may include a savings component. The money in this savings account, called cash value, grows on a tax-deferred basis. You can borrow against or withdraw from your cash value any time and use the money as you see fit.
Joint term life insurance, by contrast, provides coverage only for a specific period and doesn’t build cash value. For these reasons, it is considerably cheaper than joint permanent life insurance.
Types of Joint Life Insurance
Joint First-To-Die Life Insurance
A first-to-die policy pays the entire death benefit when the first of the two insured persons die.
Joint first-to-die can be used to pay off a mortgage or any other type of debt. It relieves the burden of debt payments for the survivor, especially if he or she doesn’t earn a paycheck. Such a life insurance policy can also be used for income replacement, particularly when both spouses have similar incomes.
A joint first-to-die policy can prove critical in a business setting as well. You and your business partner can use it to fund a buy-sell agreement. It can also help ensure that your business doesn’t face financial hardships if either of you were to pass away prematurely.
First-to-die is similar to a single life insurance policy. Once the insurer pays the benefit, the coverage terminates. If the survivor still wants coverage, he or she will have to apply once again.
Joint Last-To-Die Life Insurance
Joint last-to-die life insurance pays the death benefit after the last insured dies. It is also known as survivorship life insurance or last-to-die life insurance. After the death of the first insured, the surviving partner will have to continue paying premiums to maintain coverage.
The surviving spouse doesn’t receive any financial benefit in the case of joint last-to-die insurance. For this reason, it isn’t a suitable option for debt repayment or income replacement. Most people buy these policies to leave a legacy for their children.
Combined Life Insurance
So what’s the benefit of taking combined life insurance?
Well, combining yours and your spouse’s policy into one can help you save money. Insurers offer a pretty good discount (3-5%) when you combine two policies into one.
The Positives and Negatives of A Joint Life Insurance Policy
Positives of Joint Life Insurance
Joint life insurance policies are often cheaper than buying two separate life insurance policies. It could make sense for young couples on a tight budget. Another benefit is that it pays a death benefit regardless of which partner dies.
Negatives of Joint Life Insurance
The biggest drawback of joint life insurance is that it pays out only once. While buying two separate policies increases the cost, it also means double the coverage since each policy will pay a death benefit separately.
Also, in the event of a divorce, you may be forced to cancel the policy. If several years have elapsed since you bought the policy, you may have to pay a higher premium on account of your age.
The surviving partner of a first-to-die life policy faces a similar problem. The policy ends at the death of the first insured, and if the surviving spouse wants coverage, they will have to take another policy. Since life insurance costs increase as we age, that’s likely to come at a higher rate.
Can you get joint life insurance if you are not married?
You can still get joint life insurance if you are not married! Joint life insurance typically pays out to a surviving spouse or partner when both joint policyholders die. This is important because, in the event of an unexpected death, this joint plan provides some financial protection for your loved ones and children.
However, there may be certain limitations on coverage if you are not legally married. Some of these limitations include limited joint life insurance benefits, less coverage for your children’s education, and funeral costs. Make sure you know the details of joint life insurance if you are not married by checking with Canada Life or speaking to a financial advisor.
What happens to a joint life policy after divorce?
It’s important to discuss joint life insurance with your partner if you’re not married. If you get divorced, joint life policyholders are often entitled to a payout at the time of death, but this may depend on where in Canada they live and whether there is an agreement between them that specifies how joint assets should be divided.
For example, someone who has children from a previous marriage might want their ex-spouse to receive some or all of the joint coverage for the benefit of those kids when he/she dies.
It can also depend upon what type of joint plan it is – some plans allow beneficiaries other than
spouses, while others do not. Speak with Legal Aid or with a financial advisor about any specific questions regarding divorce and joint life policies.
Why Would You Want Joint Life Insurance?
Joint life insurance policies could make sense for:
- Young couples who want coverage for themselves and their partner but have a limited budget for life insurance
- Couples who want life insurance only to cover a major debt, like a mortgage.
What Happens to a Joint Policy After Divorce?
What happens to your joint life policy when you and your partner call it quits?
Here are your options:
Maintain the joint policy together
You and your spouse can opt to maintain the joint coverage policy together after a divorce. For that to happen, however, you two will have to agree to the terms of managing premium payments. This can be unwelcome stress in an already stressful situation.
One person maintains the policy
You or your ex can take over the joint policy. This might make financial sense if the policy was bought several years back, and you’d have to pay higher premiums now because you’re older.
Cancel the policy
Alternatively, if you have whole life insurance, you can cancel the joint policy for its surrender cash value. The amount will be equivalent to the cash value of your policy minus any fees and penalties.
Divide the joint policy into two separate policies
Some insurers offer a separation benefit that allows you to divide a joint coverage into two individual policies. Usually, this option is available only when you are under a certain age and apply within a specific period (generally 90 days) after your divorce.
- Joint life insurance policies are usually cheaper than two separate policies for two reasons: the payout is made only once, and married people live longer than singles.
- Joint life insurance policies are of three types: joint first-to-die, joint last-to-die, and combined.
- The biggest drawback of joint life insurance is that it pays out only once.
If you and your partner are looking for a life insurance policy that is simple, easy to apply for, and pays out only once, joint life insurance might be the right choice for you. Keep in mind that because it is a simplified policy, joint life insurance doesn’t offer as much coverage as other policies might, so be sure to compare your options before making a final decision.
Which is the best life insurance policy?
The answer to this question isn’t found in the back of the book. Life insurance is a deeply personal purchase and there are many factors to consider. In addition to taking into account your current family’s financial needs, you should also account for future expenses like tuition, funeral arrangements, estate taxes, and any other debts you would like settled if you died. (If that sounds complicated, there are insurance calculators).
When you search for insurance quotes, there are a multitude of options to choose from. Nevertheless, you should only purchase a policy you can afford and that makes sense for you and your family.
Thankfully, AG Group Enterprise Ltd, is here to help! Our mission at AG Group is to provide a wide range of life insurance policies, including term coverage, permanent coverage, RRSPs, RESPs, and more!
With AG group’s insurance policies, you can protect the future of your family and your finances. A good policy ensures a bright future!