Why Couples and Business Partners Buy Joint Life Insurance

Lynda Taylor is an assistant director of Insurance Solutions Development at Northwestern Mutual.

Once you’re married, you and your spouse share many parts of your lives together—a house, kids, potentially finances. But did you know you could even share a life insurance policy?

A joint life insurance policy is a life insurance policy that insures two people, typically at a lower cost than insuring them separately. We’ll help you understand what a joint life policy is and how it works so you can decide if one is right for you—and your partner.

What is joint life insurance?

Unlike an individual policy, joint life insurance or dual life insurance is a single policy that covers two people, typically at a lower cost than two individual policies. While joint life insurance is often used by married couples, you generally don’t have to be married to get a joint life insurance policy. You could even get a policy with a business partner, boyfriend or girlfriend. While joint life insurance can be either term or permanent coverage, it’s usually a permanent policy.

Typically, one joint universal life or term life policy is more affordable than two individual policies, which makes it an attractive option in some cases. It can also be helpful in getting coverage for someone who may not be able to because of a preexisting condition.

Types of joint life insurance policies

There are two common types of joint life insurance policies. The main difference between them is when the payout occurs.

First-to-die life insurance

These policies are often purchased by younger married couples to provide income replacement for their family if one of them died. Two business partners may also find first-to-die insurance to be an effective way to ensure that their business can continue if one partner passes away.

With first-to-die life insurance, when one partner dies, the death benefit is paid to the beneficiary—the surviving spouse or partner. It can be used to pay off the mortgage or put toward other household expenses or fund business expenses. Once the death benefit is paid, the coverage ends. So, to continue protect their family or their business, the surviving partner would need to purchase another life insurance policy.

Survivorship life insurance

This coverage is also known as second-to-die insurance because it doesn’t pay a death benefit when the first spouse dies. Instead, the death benefit is paid after the second spouse or partner passes away. Survivorship life insurance can help with legacy planning by making the beneficiary an estate, a family member or a charitable organization.

Since survivorship insurance pays the benefit after both insured people pass away, this coverage is usually purchased with permanent life insurance, which provides death benefit protection for life. Term insurance offers coverage only for a limited amount of time, such as 10 or 20 years. This means if the second spouse dies after the term limit is up and the policy is no longer in force, no benefit would transfer to the beneficiary.

Pros and cons of joint life insurance

While many couples and business partners choose a joint life policy, this type of insurance has advantages and drawbacks. As you and your partner evaluate joint life insurance, understand why it may or may not be a good fit for you.

Pros of joint life insurance

• One joint life policy can be less expensive than two individual policies for healthy, younger couples.

• Joint life insurance can be used to insure a partner who has been denied coverage because of a preexisting condition.

• First-to-die insurance can help a surviving parent care for their children.

• Second-to-die (survivorship) insurance can help parents create an inheritance for their children.

Cons of joint life insurance

• If one partner or spouse has health issues, joint life insurance can be more expensive.

• With first-to-die insurance, when your spouse dies, you’ll need to apply for a new policy if you still need life insurance.

• In most cases, a joint life policy is permanent insurance, which may be more expensive than term insurance.

• Joint life policies are difficult to split or surrender during divorce proceedings.

Is a joint life policy right for you?

A joint life insurance policy could be a more cost-effective option for you and your partner. Whether you want to use it for income replacement, legacy planning or business continuity, deciding to get a joint life policy is something that should be done with your full financial picture in mind.

Your financial advisor will ask better questions to get to know what’s important to you and help you make decisions that align with that vision. They can help you decide whether joint life insurance is a good fit for you and recommend other personalized options to help you reach your goals.

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.