What Is Joint Life Insurance and How Does It Work?
Joint Life (First-to-die)
Joint life is a single policy that is designed to insure two or more lives. Joint life policies can be in the form of term insurance or permanent insurance. The premium for joint life would be less than for the same type and amount of coverage on the same individuals. It is more commonly found as joint whole life, which functions similarly to an individual whole life policy with two major exceptions:
- The premium is based on a joint average age that is between the ages of the insureds; and
- The death benefit is paid upon the first death only.
A premium based on joint age is less than the sum of 2 premiums based on individual age, so it is common to find joint life policies issued on spouses. This is particularly so if the need for insurance is such that it does not extend beyond the first death. Joint life policies are used when there is a need for two or more persons to be protected; however, the need for the insurance is no longer present after the first of the insureds dies.
For example, a married couple purchasing a house may use a Joint Life policy for mortgage protection if both spouses work and earn close to the same amount of income. If one spouse dies, the insurance pays the mortgage for the surviving spouse.
Joint Life is also used to insure the lives of business partners in the funding of a buy-sell agreement and other business life needs. A buy-sell is a business continuation agreement that determines what will be done with the business in the event that an owner dies or becomes disabled.
Survivorship Life (Second-to-Die)
Survivorship life (also referred to as “second-to-die” or “last survivor” policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life, which pays upon the first death. This type of policy is often used to offset the liability of the estate tax upon the death of the last insured.
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Juvenile Life
Juvenile life insurance is, as the name implies, any life insurance written on the life of a minor. A common juvenile policy is known as the “jumping juvenile” policy because the face amount increases at a predetermined age, often age 21. The face amount jumps, but the premium remains level.
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