Protecting Your Loved Ones: Understanding First-to-Die Life Insurance in Canada

Losing a loved one is one of life’s most challenging experiences. The emotional toll can be compounded by financial concerns, especially if the deceased was the primary breadwinner. This is where life insurance comes in. Life insurance provides financial protection for your loved ones if you pass away unexpectedly. One type of life insurance policy that is gaining popularity in Canada is First-to-Die life insurance. This policy is designed to provide coverage for two people, typically spouses or business partners, and pays out when the first insured person passes away. In this blog, we will explain what First-to-Die life insurance is, how it works, and the benefits it can provide. We’ll also discuss who First-to-Die life insurance is best for, and offer tips on how to choose the right policy for your needs. By the end of this blog, you’ll have a better understanding of how First-to-Die life insurance can protect your loved ones and provide peace of mind.

In this article:

• What is First-to-Die life insurance?
• How does First-to-Die life insurance work in Canada? 
• Pros and cons of First-to-Die life insurance
• Who is First-to-Die life insurance best for?
• How to get First-to-Die life insurance
• Other forms of life insurance for couples
• Tax implications of First-to-Die life insurance
• Factors to consider when choosing a First-to-Die life insurance policy
• Tips for saving money on First-to-Die life insurance
• First-to-Die life insurance compared to other types of life insurance
• Factors that affect the cost of First-to-Die life insurance
• Case studies of First-to-Die life insurance
• Conclusion to Protecting Your Loved Ones: Understanding First-to-Die Life Insurance in Canada
• Frequently Asked Questions (FAQs) about First-to-Die Life Insurance in Canada

What is First-to-Die life insurance?

First-to-Die life insurance is a type of life insurance policy that covers two individuals and pays out a death benefit when the first insured person dies. It is commonly used by couples or business partners who want to protect each other in the event of one partner’s death. Unlike traditional life insurance policies, which pay out when the insured person dies, First-to-Die life insurance policies provide coverage for the first death only.

One of the main benefits of First-to-Die life insurance is that it can be more cost-effective than two separate life insurance policies. Since the policy pays out after the first insured person dies, it typically costs less than buying two individual policies. This can be particularly attractive to couples or business partners who want to ensure that the surviving partner can maintain their standard of living after the death of the first partner.

First-to-Die life insurance policies can also provide additional benefits, such as a waiver of premium or a term conversion option, which allow the surviving partner to convert the policy to an individual policy without the need for additional medical underwriting. Some policies may offer a variety of riders, such as accidental death or critical illness coverage, to provide additional protection.

Not all life insurance companies offer First-to-Die policies, and the rules of these policies can vary. If you are considering purchasing First-to-Die life insurance, it is important to consult with a licensed insurance professional to ensure that you understand the policy’s coverage, limitations, and costs.

How does First-to-Die life insurance work in Canada? 

First-to-Die life insurance policies work similarly to other types of life insurance policies. The policy covers two individuals and pays a death benefit when the first insured person dies. The death benefit is paid directly to the surviving insured person, who can use the funds to cover any expenses they may have, such as funeral costs, a mortgage, education expenses or outstanding debts.

First-to-Die life insurance policies can be structured as either term or permanent life insurance policies, with term policies providing coverage for a specific period of time and permanent policies providing coverage for the insured person’s entire life. The premiums for these policies can vary depending on a number of factors, such as the insured person’s age, health status, and the amount of coverage needed.

It is important to note that the terms and conditions of First-to-Die life insurance policies can vary between insurance companies, so it is essential to work with a life insurance broker and compare policies and read the fine print carefully before purchasing a policy.

Pros and cons of First-to-Die life insurance

Like all life insurance policies, First-to-Die life insurance policies have both advantages and disadvantages.

One of the primary advantages of First-to-Die life insurance is that it can be more cost-effective than purchasing two separate life insurance policies. This can make it an attractive option for couples or business partners who want to ensure that the surviving partner can maintain their standard of living after the first partner’s death. First-to-Die life insurance policies can also be more flexible than other types of life insurance policies, with options such as waiver of premium and term conversion, which can make it easier for the surviving partner to continue the policy after the first partner’s death. These policies can also provide additional riders, such as accidental death or critical illness coverage, to provide additional protection to the insured individuals.

The potential drawbacks of First-to-Die life insurance is that it only provides coverage for the first insured person’s death, which may not be sufficient for the surviving partner’s needs if they outlive the policy. The policy may have limitations and exclusions that could impact the payout or eligibility for coverage. It is also important to note that the surviving partner can purchase a new life insurance policy after the first insured person’s death, which can be more expensive due to age and health factors but some insurance companies offer automatic conversions to individual life insurance policies without medical examinations.

Overall, First-to-Die life insurance policies can be an effective way to protect the financial security of loved ones in the event of a partner’s death.

Who is First-to-Die life insurance best for?

First-to-Die life insurance policies are designed for individuals who want to provide financial protection for their loved ones in the event of the first insured person’s death. This type of policy can be particularly useful for couples or business partners who want to ensure that the surviving partner can maintain their standard of living after the death of the first partner.

Here are some examples of who First-to-Die life insurance may be best for:

Couples:

First-to-Die life insurance can be an excellent option for couples who want to ensure that the surviving partner can maintain their standard of living after the first partner’s death. This can be particularly important if one partner earns significantly more than the other or if one partner is the primary caregiver for children or dependents.

Business partners:

First-to-Die life insurance can also be useful for business partners who want to ensure that the business can continue to operate smoothly in the event of one partner’s death. The policy can provide funds to buy out the deceased partner’s share of the business or cover any other expenses that may arise.

Individuals with high-risk health conditions:

Individuals with high-risk health conditions, such as a history of heart disease or cancer, may find it difficult or expensive to obtain individual life insurance policies. First-to-Die life insurance can be a useful alternative, as it covers two individuals and can be more flexible and affordable than traditional policies.

Those with limited budgets:

First-to-Die life insurance can also be a cost-effective option for individuals who want to protect their loved ones but have limited budgets. Since the policy covers two individuals, it can be less expensive than purchasing two individual policies.

It’s important to note that while First-to-Die life insurance can be a good fit for many individuals and families, it may not be the best option for everyone but First-to-Die life insurance might be right for you if it suits your needs and budget.

How to get First-to-Die life insurance

If you’re interested in purchasing First-to-Die life insurance, there are several steps you can take to get started. First, you’ll need to determine how much coverage you need. Consider your financial obligations, such as outstanding debts, mortgage payments, and childcare expenses, as well as any potential future expenses that may arise, to find out more read our blog: How Much Life Insurance Do I Need in Canada. This will give you a better idea of the amount of coverage you should be looking for. If you are unsure about the specifics of what you need to account for, talk to a life insurance broker who can help you complete a needs assessment to figure out how much coverage you need.

Once you’ve determined your coverage needs, you can contact a life insurance broker to begin seeing your insurance provider option for First-to-Die life insurance policies. There are many insurance companies in Canada that offer this type of policy, so it’s important to work with a broker who can compare policies, premiums, and coverage limits from various life insurance companies to find the best option for your needs and budget.

After you’ve selected a policy and consulted with an insurance professional, they can help apply for coverage. The application process typically involves providing personal and medical information, such as age, gender, and medical history. You may also be required to take a medical exam or provide additional documentation.

Once you’ve submitted your application, the insurance provider will review your information and determine whether to approve your application. This process can take several weeks, depending on the complexity of your application. If your application is approved, you can start your First-to-Die life insurance coverage.

It’s important to make sure that you understand the policy’s terms and conditions, including any exclusions or limitations that may apply. If you have any questions or concerns, don’t hesitate to contact our licensed insurance professional. With the right First-to-Die life insurance policy in place, you can have peace of mind knowing that your loved ones will be protected in the event of your or your partner’s untimely death.

Other forms of life insurance for couples

There are plenty of life insurance policies that are competitive with First-to-Die life insurance policies but they have their own advantages and disadvantages. There are joint life insurance policies, Last-to-Die life insurance, individual term life insurance and permanent life insurance policies. These might be right for you or they might not be but nonetheless it is good to reach out to a life insurance broker to learn more about what policies are best for you. Also our blog covers information about all of these different kinds of policies. 

Joint life insurance: Joint life insurance is similar to First-to-Die life insurance in that it covers two people, typically spouses or business partners. However, unlike First-to-Die life insurance, joint life insurance pays out when both insured individuals pass away. Joint life insurance policies can be structured as either term or permanent policies.

Last-to-Die life insurance: Another type of life insurance policy that couples may consider is Last-to-Die life insurance, which provides coverage for both individuals and pays out a death benefit when the last insured person dies. This type of policy can be useful for couples who want to provide a financial legacy for their heirs or who want to ensure that their estate is protected from taxes or other expenses.

Individual life insurance: Individual life insurance policies are purchased separately by each individual and provide coverage for the insured person’s entire life. This type of policy can be useful for couples who have different coverage needs or who want to ensure that their coverage is not tied to their partner’s health or other circumstances.

Term life insurance: Term life insurance provides coverage for a specified period of time, typically 10, 20, or 30 years. This type of policy can be an affordable option for couples who want to ensure that their loved ones are protected during a specific period, such as when children are young or a mortgage is being paid off.

Whole life insurance: Whole life insurance provides coverage for the insured person’s entire life and includes a cash value component that grows over time. This type of policy can be a good option for couples who want to build wealth over the long term while also providing life insurance coverage.

Tax implications of First-to-Die life insurance

The tax implications of First-to-Die life insurance policies in Canada can vary depending on the policy and the specific circumstances of the insured individuals. In general, the death benefit paid out by a First-to-Die life insurance policy is not taxable for the surviving insured person.

However, if the policy is owned by a corporation or business, the death benefit may be subject to taxes or other fees. Additionally, if the policy is structured as a permanent policy with a cash value component, the policy may be subject to tax on the investment earnings.

It’s important to consult with a licensed insurance professional to determine the specific tax implications of a First-to-Die life insurance policy in your situation. They can help you understand the tax laws and regulations that apply to your policy and ensure that you are taking advantage of any tax benefits that may be available.

Factors to consider when choosing a First-to-Die life insurance policy

Choosing the right First-to-Die life insurance policy can be an important decision that can impact the financial security of your loved ones. Here are some factors to consider when choosing a First-to-Die life insurance policy:

Coverage amount: One of the most important factors to consider is the amount of coverage you need. This will depend on your financial obligations, such as outstanding debts, mortgage payments, and childcare expenses, as well as any potential future expenses that may arise.

Premiums: The premiums for First-to-Die life insurance policies can vary widely depending on the amount of coverage, the age and health of the insured individuals, and other factors. It’s important to choose a policy that fits your budget and that you can afford to maintain over the long term.

Policy structure: First-to-Die life insurance policies can be structured as either term or permanent policies. Term policies provide coverage for a specific period of time, while permanent policies provide coverage for the insured person’s entire life. It’s important to consider your long-term needs and goals when choosing the policy structure that is right for you.

Additional riders: Some First-to-Die life insurance policies offer additional riders, such as accidental death or critical illness coverage. These riders can provide additional protection to the insured individuals and may be worth considering depending on your specific needs.

Policy exclusions and limitations: It’s important to read the fine print and understand any exclusions or limitations that may apply to the policy. For example, some policies may exclude coverage for certain pre-existing conditions or may limit coverage for certain types of death, such as suicide.

By considering these different facts you can narrow down what your needs and wants are for a life insurance policy.

Tips for saving money on First-to-Die life insurance

First-to-Die life insurance can provide an affordable way to protect your loved ones in the event of an unexpected death. To help reduce your premiums, it’s important to shop around and compare quotes from multiple insurers to find the best rates and coverage options. Additionally, consider purchasing a term policy rather than a permanent policy, as this can be a more cost-effective option, especially for younger or healthier individuals. Taking steps to improve your health, such as through regular exercise and a healthy diet, can also help you qualify for lower premiums. Paying your premiums annually rather than monthly can also result in savings, as many insurers offer discounts for annual payments.

First-to-Die life insurance compared to other types of life insurance

The cost of a First-to-Die life insurance policy can vary depending on several factors, including the age and health of the insured individuals, the amount of coverage needed, and the type of policy selected. In general, First-to-Die life insurance policies can be less expensive than purchasing two separate individual policies, since the insurer assumes that the second individual will outlive the first, but the payout will ultimately be higher.

Compared to other types of life insurance policies, the cost of First-to-Die life insurance can be similar to or lower than other policies, such as term life insurance. However, this can depend on the specific policy and the individual circumstances of the insured individuals. For example, if the insured individuals have significant health issues or are older, the cost of a First-to-Die life insurance policy may be higher than that of a term life insurance policy.

It’s important to compare the costs and benefits of different types of life insurance policies to find the policy that best fits your needs and budget. They can help you understand the costs and limitations of different policies and find the best rates based on your unique circumstances.

Factors that affect the cost of First-to-Die life insurance

The cost of First-to-Die life insurance can be impacted by a number of different factors, including age, health, coverage amount, policy structure, and additional riders. Generally, the older the insured individuals are, the higher the premiums will be, as age is a significant factor in determining life insurance rates. Insurers also take into account the current health status and medical history of the insured individuals, as well as lifestyle factors like smoking. The amount of coverage needed can also impact the premiums, as higher coverage amounts will result in higher premiums. The policy structure can also impact the cost, with permanent policies generally being more expensive due to their longer coverage period and cash value component. Finally, adding additional riders such as accidental death or critical illness coverage can increase the premiums.

Case studies of First-to-Die life insurance

These case studies illustrate how First-to-Die life insurance can provide financial security and peace of mind for individuals and their loved ones, whether it’s to pay off debts, cover final expenses, or provide a legacy.

Bill and Karen: Bill and Karen are business partners who co-own a small company. They recently purchased a First-to-Die life insurance policy with a coverage amount of $1 million. Unfortunately, Bill passed away a few years later. Thanks to the First-to-Die policy, Karen received the full death benefit of $1 million, which helped her buy out Bill’s share of the company and continue running the business without financial strain.

Fatima and Ahmed: Fatima and Ahmed are a married couple in their early 40s with two young children. They recently purchased a First-to-Die life insurance policy with a coverage amount of $500,000. Unfortunately, Ahmed passed away unexpectedly a few years later. Thanks to the First-to-Die policy, Fatima received the full death benefit of $500,000, which helped her pay off the mortgage on their home and provide financial security for their children.

Juan and Maria: Juan and Maria are a retired couple who recently purchased a First-to-Die life insurance policy with a coverage amount of $250,000. Unfortunately, Juan passed away a few years later. Thanks to the First-to-Die policy, Maria received the full death benefit of $250,000, which helped her cover Juan’s final expenses and provided additional funds for her own retirement.

Conclusion to Protecting Your Loved Ones: Understanding First-to-Die Life Insurance in Canada

In conclusion, First-to-Die life insurance can be an important tool for protecting your loved ones in the event of an unexpected death. This type of policy provides coverage for two individuals and pays out a death benefit when the first insured person passes away. By understanding the benefits, drawbacks, and costs of First-to-Die life insurance, as well as the other types of life insurance policies available, you can make an informed decision about the policy that best fits your needs and budget.

When shopping for First-to-Die life insurance, it’s important to consider factors such as the amount of coverage needed, the age and health of the insured individuals, and the policy structure. Additionally, working with a licensed insurance professional can help you navigate the insurance marketplace and find the policy that best fits your unique circumstances.

Ultimately, First-to-Die life insurance can provide financial security and peace of mind for you and your loved ones. By taking the time to understand your options and make an informed decision, you can ensure that your loved ones are protected and provided for in the event of an unexpected loss.

Contact us now to protect your loved ones!

Now that you have read our blog: Protecting Your Loved Ones: Understanding First-to-Die Life Insurance in Canada, contact our team to see what your options are so can find the right life insurance policy to protect your spouse and your loved ones in the event that you pass away. At Protect Your Wealth, we’ve been providing expert advice for all types of life insurance, and retirement and investing planning, since 2007. As your Life Insurance broker and financial planner, we work with you to create a personalized plan for your family or business that covers and meets your needs.

To schedule a consultation about your investment goals, or if you have any questions about insurance in Ontario or Canada, please contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, British Columbia and Alberta  including areas such as Guelph, Edmonton, and Vancouver. 

Frequently Asked Questions (FAQs) about First-to-Die Life Insurance in Canada