Joint life insurance

Joint life insurance covers two insured people under one contract. There are two designs. A first-to-die policy pays when the first of the two dies, and coverage then ends for the survivor. A second-to-die, or survivorship, policy pays nothing at the first death and pays the full benefit when the second person dies. Most joint policies are permanent coverage, such as whole life or universal life.

Each design fits a different need. First-to-die is sometimes used by couples who share a mortgage or by business partners funding a buy-sell agreement. Second-to-die is used mainly in estate planning: because the unlimited marital deduction often defers federal estate tax until the second spouse dies, the policy provides cash when the tax comes due. Say, hypothetically, a couple's estate plan projects a large tax bill at the second death. A second-to-die policy owned by an ILIT can pay it without forcing a sale of the family business.

A joint policy can cost less than two individual policies, but a first-to-die policy leaves the survivor uninsured, possibly at an age when new coverage is expensive. Ask whether it includes a survivor purchase option. See joint first-to-die life insurance and survivorship (second-to-die) life insurance.