First and Second to Die

First and Second to Die Life Insurance: Insuring two or more people

With a survivorship or joint life policy, you open a world of possibilities for joint life insurance coverage.

Many people don’t realize just how customizable life insurance policies really are. With the special options and riders offered by many insurers, you can often tailor a policy specifically to your needs and make it as individual as you are. One insurance option that is not often suggested is especially powerful because it covers two or more people for less money than it would cost to cover each person individually. This option is called joint life insurance and/or survivorship life insurance. The policies themselves can be issued as term policies or permanent (whole life) policies.

Joint Life: First to die life insurance
Joint life insurance is used when there is a need for two or more people to be protected and the need ends once one person within the unit dies. Because there is no longer a need after the first death, joint life insurance pays out only once–when the first person dies. Joint life insurance insures two or more people for less than the sum of two individual policies, and premiums are based on the average age of the two. It is most commonly issued on husbands and wives although it can also be issued on two or more business partners.

For instance, if two people own a building together and do not rely on each other for monthly living expenses but DO rely on each other to pay half of the building mortgage, then a joint life policy can be used to pay off the mortgage when the first person dies. There would be no other need for the policy and the survivor’s family will inherit a paid off building upon his or her death.

Survivorship Life: Second (or last) to die
Survivorship life is similar to joint life in that it insures two or more people for a premium based on their joint age. However, survivorship life pays a death benefit out only on the last death, unlike joint life which pays a death benefit only on the first one. Since the death benefit is not paid until the last insured dies, the life expectancy for the policy is based on a longer time span which allows for a lower premium than an individual or joint life policy. Survivorship policies are popular for many situations. Often, couples who are retired and do not rely on each other for income will buy a survivorship policy to help their children with estate taxes.

Joint and survivor policies sometimes include a spendthrift clause. The spendthrift clause prevents the beneficiary from falling prey to poor budgeting and spending the benefits too quickly. The clause requires that the death benefit be paid out over time or in fixed installments. The beneficiary is not entitled to change the settlement option and cannot borrow or assign any of the proceeds. The spendthrift clause is also helpful in preventing creditors of a beneficiary from taking the benefit to pay debts.