Should you buy single vs. joint life insurance policies?
If you have a partner, it may seem romantic to do everything together (even if it annoys the heck out of everyone around you). But it isn’t always in your best interest to buddy up with your partner. One of these cases is when you buy life insurance.
When you have a partner and want to buy life insurance, you have two options: you can each purchase a single life insurance policy or you can purchase a joint life insurance policy.
What’s the difference?
A single-life insurance policy covers one person. In other words, it covers one life (usually yours or your partner’s) and will pay out a claim if the individual listed on the policy dies.
In contrast, a joint policy covers two lives. This means that if you and your partner have a joint life insurance policy, it will pay out a claim if either you or your partner dies.
Following us? Good.
There’s one more thing to think about.
The types of joint life insurance
Joint life insurance policies come in two forms: first-to-die and second-to-die.
Let’s talk about how these policies differ. First-to-die policies pay a claim once the first member of the couple dies. So if either you or your partner passes during the term of your insurance policy, the policy will pay the claim.
The second-to-die policies pay only when the second person on the policy passes. Also called survivorship policies, the death benefit for these policies is paid out once both policyholders have passed.
As you may have guessed, first-to-die policies act more as “income replacement" policies, just like how a traditional term insurance policy does. They cover beneficiaries if a key income earner were to pass. They work for families with a mortgage or other debts, young children, or anyone who needs a stable income to maintain their lifestyle.
So do you buy single vs. joint life insurance policies? If you’re in a committed relationship, it may seem obvious to take out a joint policy. After all, you and your partner are bonded for life, right?
But let’s talk about the pros and cons of joint life insurance policies relative to single life insurance policies.
The pros of joint life insurance
In general, it should be cheaper for your insurer to underwrite two people at once vs. two people individually. Because of this, you usually get a small discount for reducing the operational burden for your insurance company.
In addition, if you have a joint policy and both of you die during the term of the policy, your insurance company won’t have to pay out as much money as they would have if you both had single policies. After all, with joint policies, the insurance company pays only one claim. In contrast, single policies pay two claims (one for each person who passed). This should decrease the price of a joint policy a bit. But remember that it’s very unlikely that both you and your partner will die during the term of your policy, especially if you’re a younger couple. As a result, you’ll probably get only a small discount on the price of a joint policy. (You better hold off on that mega shopping spree.)
Remember how life insurance pricing depends on age and health status? If you or your partner is considerably healthier or younger than the other, that person might end up paying a lot more over the life of a policy than they would have if they had bought their own policy. Unfortunately, when it comes to life insurance, age and age differences aren’t just numbers.
The cons of joint life insurance
Another downside of a joint policy is that if the relationship breaks down, you can’t simply split the policy between the two of you. In most cases, your joint policy would cease and both you and your former partner would need to buy new single policies, which would come at a higher cost.
Life insurance is complicated, and it pays to know the facts. Get all your life insurance advice in one place with PolicyMe.