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Joint Life Insurance: Everything You Need to Know

Are you considering buying joint life insurance for its cost-saving benefits or its significance in estate planning? This comprehensive guide will provide you with a clear understanding of how it works, the different types available, and what happens to the policy if you get divorced or separated. 

What is Joint Life Insurance?

Joint life insurance is a single insurance policy covering two people. This insurance is mainly preferred by couples or common-in-law partners as it is one contract with the same coverage amount. If the policy is active and one of the partners passes away, the other partner gets the lump sum tax-free insurance payment.  

How does Joint Life Insurance Canada work?

As discussed above, a joint policy is a unique legal insurance contract designed to protect your spouse when you pass away. 

Here’s how this policy works:

  • As a couple, you must consult the right insurance company to apply for this insurance at the same time. Under this policy, you and your partner will be covered under the same amounts and term lengths.
  • You need to pay only one premium per month and there is only one death benefit that depends on the type of joint life insurance you choose.
  • As the policy will expire after the payout is made, the surviving spouse must apply for another insurance coverage. 

Note: Joint life insurance policy can be both permanent and temporary. However, term insurance works best for couples and families as it offers benefits for temporary dependants like kids and it is highly beneficial to pay the mortgage debt. 

Also Read: How Does Life Insurance Works in Canada?

Who can Buy Joint Life Insurance?

A joint life policy is quite common among married couples. However, it is not mandatory that you have to be married or be a couple to get joint life insurance. Even business or domestic partners also qualify for this policy. 

Types of Joint Life Insurance in Canada for Couples

Types of Joint Life Insurance in Canada

Here’s a quick overview of three different types of joint life insurance in Canada for couples:

1. Joint First-to-Die Life Insurance

Joint first-to-die life insurance is a popular choice among couples in Canada. As the name suggests, under this insurance policy, the death benefit is paid after the first partner passes.  This means that if one spouse passes away, the surviving spouse receives the full benefit to help cover expenses such as mortgage payments, debts, and daily living costs.  The policy ends after the payout leaving the second partner without any policy. Therefore, the partner needs to buy new life insurance.

Buy Joint First-to-Die Life Insurance if:
  • Only one person is responsible for living expenses.
  • You have enormous financial obligations like a mortgage to pay.

2. Joint Last-to-Die Life Insurance

In contrast to joint first-to-die life insurance, joint last-to-die life insurance provides a death benefit only after both insured individuals have passed away. This type of policy is commonly chosen by couples who want to leave a financial legacy or provide for their heirs, such as children or grandchildren, rather than addressing immediate financial needs. 

Buy Joint Last-to-Die Life Insurance if:
  • You want to secure your family’s and loved one's future. 
  • Your beneficiaries need to deal with complex estate planning. It is often used to cover potential estate taxes, ensuring that heirs receive a substantial inheritance without the burden of significant tax liabilities. 
Also Read: Single Vs Joint Life Insurance

Pros and Cons of Joint Life Insurance 

pros and cons of joint life insurance

With different types of life insurance available, buying joint life insurance in Canada is an important decision and must be taken after extensive research. Whether first-to-die or last-to-die joint life insurance, both options offer some advantages and disadvantages that you must consider while making the buying decision. To help you make better decisions, we have penned down the pros and cons of joint life insurance. 

Pros of Joint Life Insurance:

  • Cost Savings: If you are a couple who is looking to maximize their while minimizing their expenses, then Joint life insurance is a perfect pick. The premiums for joint life policies are lower as compared to the combined premiums of two separate individual policies. This makes the policy highly cost-effective. 
  • Convenience: Managing two different policies is complex as compared to a single joint policy where there is only one policy to keep track of, one premium payment, and one set of paperwork. 
  • Estate Planning: With life insurance being taxable in Canada, Joint life insurance can play a crucial role in estate planning.Joint last-to-die life insurance is highly helpful in estate planning. The payout that goes to beneficiaries after both insured individuals pass away can be used to cover estate taxes, leaving a more substantial inheritance for the loved ones.
  • Immediate Financial Protection: With Joint first-to-die life insurance the surviving spouse or partner in case of the first insured's death gets the death benefit, ensuring immediate financial support. This can help cover mortgage payments, debts, and daily living expenses during a difficult time.

Cons of Joint Life Insurance:

  • Limited Payouts: One of the major cons of joint life insurance is that it typically pays out only once. In the case of joint first-to-die insurance, the policy terminates after the first insured's death, leaving the surviving spouse without coverage. This may be a concern if the surviving spouse still needs insurance protection.
  • Difficult to Divide: Splitting up the joint life insurance policies is very hard if the couple decides to get divorced. 
  • Shared Underwriting: Both individuals' health and risk factors are considered when underwriting a joint policy. If one individual is in excellent health and the other has health issues, the premiums for the joint policy may be higher than what the healthier individual would pay for an individual policy.
  • Lack of Flexibility: Joint life insurance covers both partners for the same time and amount. The policy does not offer any flexibility to couples having different individual needs. Better go with individual term insurance policies if you have different needs. 

What happens to Joint Life Policy if the Couple gets Divorced?

Splitting up the policy becomes very difficult if the couple decides to separate or divorce. 

Here are some possible outcomes:

  • Policy Continuation: Some divorced couples may choose to maintain their joint life insurance policy, especially if they have children together and want to ensure financial support in case one of them passes away. In such cases, the policy may continue with the same terms, and one or both ex-spouses may remain beneficiaries. 
  • Change of Beneficiaries: In many cases, divorced couples will update their joint life insurance policies to remove the former spouse as a beneficiary and possibly add children or other family members instead. This is a crucial step to ensure that the death benefit goes to the intended recipients after divorce.
  • Policy Termination: In this case, the policy is canceled, and any cash value or surrender value is distributed or used according to the terms of the policy and the divorce agreement. It's essential to understand the policy's surrender value and any penalties for early termination.
  • Conversion to Individual Policies: In some cases, after divorce, one or both individuals may decide to convert the joint life insurance policy into individual policies. This allows each person to have independent coverage tailored to their specific needs and circumstances.

How to buy Joint Life Insurance in Canada?

Determine whether joint life insurance aligns with your financial goals and needs. Consulting with an insurance professional can provide valuable insights and help you make an informed decision tailored to your circumstances.

Getting joint life insurance just got simple with Life Simple. Life Simple offers Joint life insurance through our partners at Lions Peak Financial Group. LPFG specializes in providing comprehensive joint life insurance solutions, ensuring that you and your loved ones have the protection you need. Don’t worry! All you have to do is apply at Life Simple to get started with buying joint life insurance in Canada.

With their expertise and experience, you can rest assured that your financial future will be well-protected.

For any further information or to initiate the process, contact us today! With their expertise and experience, you can rest assured that your financial future will be well-protected. For any further information or to initiate the process, contact us today!

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