Are Joint Life Insurance Policies Cost-Effective For All Couples?
Insurance provides couples with much-needed financial security for their families in the event of the death of one or both partners. Recognizing this, insurance providers started to provide joint lie insurance policies for couples, advertising them as being cost-effective and providing coverage to both partners for the price of one insurance policy.
However, the matter is not as simple as that. Other factors decide the cost of a joint insurance policy including the age, health, and financial goals of the partners.
Today we’ll be giving you an understanding of joint insurance policies, their cost-effectiveness, and the overall pros and cons of joint insurance policies. Hopefully, this will enable you to make an informed decision and choose the right insurance plan for your family.
Understanding Joint Life Insurance Policies
Joint life insurance policies insure couples under the same policy, rather than both partners purchasing two separate policies. Joint life insurance policies have several pros and cons, which we’ll discuss shortly, and there are two main types, “first-to-die” policies and “second-to-die” policies.
In “first-to-die” policies, a death benefit is paid by the insurer upon the death of any one partner. These proceeds can be used by the surviving partner to cover funeral expenses and set up a fixed income account to replace the income of the partner who has passed away.
In “second-to-die” policies, the insurer will pay benefits only in the event both partners have died. These policies are used to cover the funeral expenses of the second partner and for their children or other beneficiaries to benefit.
Even though joint insurance policies cover two people, only one premium is paid, making it cheaper than subscribing to two individual insurance policies. However, if you’re looking for flexibility in terms and coverage amounts, then you might want to consider an individual insurance policy for both partners.
Cost-Effectiveness Factors
While there is no doubt that one joint insurance policy can be cheaper than two individual policies, you need to look beyond just that to accurately assess whether joint policies are cost-effective.
For example, if there’s a significant age gap between the partners or health differences, with one partner being healthy and active, while the other is not, then the cost of the joint policy rises and the coverage could also reduce. In such cases, it might be better to opt for individual policies so at least one partner could have decent coverage while paying a low cost.
You also want to consider your long-term financial goals and ensure whether a rigid investment option like a joint insurance policy is right for you. When it comes to estate planning, you would want an investment option that is a bit more flexible as a person’s financial circumstances and strategy can change as time passes.
Pros and Cons of Joint Life Insurance
Pros
The first pro is the cost factor. Normally a joint insurance policy should cost less than two individual policies, but this is not always true. If there are differences in age and health of the couples, then you might end up paying just as much as you would for individual policies, while also getting less coverage.
Joint policies are specifically tailored for couples and are also easier to apply for, as there’s only a single application to deal with, which significantly reduces processing times and instances of approval.
Cons
The first and foremost con of joint policies is rigidity. Even though both partners have different needs, financial circumstances, and coverage requirements, the joint policy will offer the same amount and term for both partners.
As such, if you and your partner have different needs and circumstances, then you should definitely consider an individual policy instead.
Moreover, in the event the couple decides to split up or divorce, the policy won’t be divided. You would need to keep the policy going, transfer the policy to one partner, or cancel the policy altogether.
Another con is the single payout which, in the case of first-to-die policies, would mean the surviving partner receives a payout but is without any coverage following the payout unless a new insurance policy is purchased.
FAQs
Q) Are joint life insurance policies always cheaper than individual policies for couples?
They can be cheaper, but not in every circumstance. The cost of a joint insurance policy will heavily depend on the age and health of both partners and also on their personal financial circumstances and goals. For example, if one partner is healthy and young and the other is significantly older and not in as good health, then you’ll likely encounter expensive premiums and low coverage amounts.
Q) Can both partners be covered equally under a joint life insurance policy?
Both partners are covered equally, but the payout structure might defer depending on the type of joint policy the couple chooses. In first-to-die policies, the policy will pay out a benefit on the death of any one partner, whereas in second-to-die policies the payout only comes when both partners have passed away.
Q) Is it possible to convert a joint life insurance policy into individual policies?
You might be able to find such a policy, but not every insurance provider will allow for a conversion. It would be best to review a few different insurance providers to find the plan that best suits your needs and wants.
Q) How do joint life insurance policies fit into estate planning?
A second-to-die joint insurance policy can be used for estate planning, as that is the only policy that would pay to the heirs and be considered as part of the estate. First-to-die policies will give a payout to the survivor, which doesn’t come into the ambit of estate planning.
Speaking To An Insurance Expert
Sometimes choosing the right insurance plan or policy is only possible after speaking to an insurance expert. At McIver Insurance, you can rest assured that you will be given in-depth and accurate advice, to ensure you have the right insurance plan to give your family the best financial protection possible.
