When browsing for life insurance policies for you and your partner or family, you’ll most likely come across offers for either two single life policies or a joint life policy on a product. You may be wondering, what exactly is the difference between a single life policy and a joint life policy, and which would be best for your situation? Here’s what you need to know about these types of policies.
What is a single life policy?
Unless indicated otherwise, life insurance always refers to single or individual life insurance, meaning the policy only covers and insures one person.
If you have a partner, and you each have a separate life insurance policy, each policy will pay out to the beneficiary separately upon the insured’s death. You can customize each of your own policies according to your individual needs. If one person dies, the designated heritor or beneficiary will receive the payout. Meanwhile, the surviving partner will continue having life insurance coverage.
What is a combined policy?
If you and your partner apply for policies at the same time, you can ‘combine’ your policies for a discounted ‘combined policy’. This means that you and your partner can customize the terms, premiums and conditions for your respective policies. Combined life insurance joins two separate policies, with different terms, conditions and payouts from the same company. Getting combined life insurance generally saves you some money, as the admin fees are lower since they only have to charge a single policy fee when underwriting two people at the same time. It works the same way as two single-person policies: both you and your spouse will get coverage, and the insurer will pay the death benefit twice on each of your deaths.
Alternatively, another package you can get for your partner and family is family life insurance. In Canada, family life insurance is a combined package of different types of life insurance to cover a family for life. Typically, family life insurance is when you package a couple of riders with your term life or permanent life insurance coverage and plan. This doesn’t need to just be just life insurance but can also be disability insurance, and critical illness insurance as well.
Single Life Insurance Pros and Cons
Pros of Single Life Insurance
If you and your partner both get single life insurance or a combined policy you have the following benefits:
Both the partners can apply for and obtain their own single or individual life insurance
The individual coverages can be customized to their respective needs. In other words, the partners can have their respective coverage amounts, coverage lengths, and even have different beneficiaries for their policies
If one partner passes away, the beneficiary will receive the respective benefit. The surviving spouse will continue to have coverage and their respective beneficiaries will receive their benefit when this spouse passes away
Cons of Single Life Insurance
Some disadvantages of getting two single life policies for you and your partner include:
Having a policy for each partner and paying separate premiums can be costly
It can be more difficult to secure a policy for both partners
What is a joint life policy?
A joint life insurance policy in Canada is a policy that will cover both partners under the same terms and conditions. Both partners apply at the same time with one application, pay one monthly premium, and it pays out the benefit once.
A joint policy may make sense for you, if you and your partner both want to have life insurance. Because the death benefit is only paid once, having a joint life insurance is usually less expensive than two single life policies. Insurers can also provide reduced rates because married people typically live longer than single people.
With a joint life insurance policy, both partners get covered for the same amount, and once a payout is made to the beneficiary, the policy ends. For example, if you get a joint life policy for $500,000 coverage, both partners are covered with that policy and only have to pay one monthly premium instead of two for 2 separate policies. Once the $500,000 coverage is paid out to the beneficiary, the policy will end.
Types of Joint Life Insurance Policies
Note that joint life insurance itself isn’t a product: you can’t buy something called “joint life insurance” from an insurer. Typically, when buying life insurance, you’ll see products like this:
These term or permanent products refer to the time which you are covered for. For example, if you buy a term 10 product, you are covered for a chosen amount for 10 years, which you can renew for another 10 years. When choosing a joint life policy with these products, you and your partner are covered for those amount of years. Moreover, the type of joint life policy you choose will change how your death benefit is treated. There are two types of joint-life policies that you can choose from: Joint First-to-die and Joint Last-to-die.
Joint First-to-Die life insurance policy
In a joint first-to-die life policy, the death benefit is paid at the time of the first death. This is useful for a shared obligation like repaying a mortgage. The alternative to this type of policy is getting two single life policies, which usually costs more.
This type of joint policy can be used to pay off and relieve the burden of debt payments for the survivor, especially if they don’t earn a paycheck. As such, joint first-to-die policies can also be used for income replacement, particularly when both spouses have similar incomes.
A joint first-to-die policy can prove critical in a business setting as well. By insuring the lives of two or more business partners, the death benefit can be used to settle any business liabilities upon the passing away of your business partner or yourself.
Similar to a single life policy, once the insurer pays the benefit from the joint policy, the coverage terminates. However, if the survivor still wants coverage, they will have to apply once again.
Joint first-to-die policies can also offer some unique benefits:
- Insurability privilege: Within a certain period of time following the death of the first insured, the surviving insured can request continued life insurance coverage from the insurance company without undergoing new medical underwriting. However, such coverage is more expensive as it is offered as permanent life insurance and the premium is recalculated based on the current age of the surviving insured. Most companies will specify a maximum age for coverage eligibility of the second insured.
- Double payout on simultaneous deaths: Many companies offer a double benefit option on joint first-to-die policies, whereby an additional coverage amount will become payable to the beneficiary if both the insured die together or within a short time (45 or 90 days) of each other
Joint Last-to-die life insurance policy
The death benefit is paid at the time of the last death (after both partners covered by the policy pass away). After the second insured dies, the death benefit is paid to the beneficiaries, much like a single-person life policy. Because of this, Joint last-to-die life insurance is also called second last-to-die or survivorship life insurance.
As mentioned, joint last-to-die life insurance doesn’t offer a financial benefit to the surviving spouse. For this reason, it doesn’t work well as an income replacement. It works best as a way for paying final costs or debts, or leaving an inheritance for children. The surviving partner will have to continue paying the premiums to maintain the coverage, but assets such as RRSPs and a cottage can be transferred to the surviving spouse tax-free. This defers taxes until the second death.
Joint Life Insurance Pros and Cons
Pros of Joint Life Insurance include:
Joint life insurance is affordable and accessible to young families or couples looking for coverage because it’s less expensive pay for two separate policies
Applying for joint life insurance is a more straightforward process: it’s quicker and easier than going through the process of securing two policies
A joint life insurance pays out a claim regardless of which of the insured passes away
Joint Life Insurance Cons
Some disadvantages of getting joint life insurance policies include:
Joint policies are challenging to split up: If you and your partner decide to divorce or separate, there’s no simple way to divide a joint life insurance policy
Obtaining individual coverage later in life can be expensive. If your partner passes away in a first-to-die policy or you choose to separate, you may need to buy a single life insurance policy for yourself, which can be expensive when you get older
Both you and your partner are covered for the same amount and term, meaning your policy limited personalization. The amount and length of coverage has to be the same for each of the insured
A joint life insurance policy only pays out once. Obtaining two individual policies may increase the cost you pay per month for premiums, but it also doubles the coverage as two independent policies each pay out on their own
Joint life Insurance vs. Single Life Insurance for Couples
Below is a chart comparing the features of a joint first-to-die life insurance policy vs having single life insurance policies as a couple.
Joint life policies:
- Are one common policy contract that covers both partners
- Both partners share the one coverage amount and term length
- The policy expires when the claim is paid
- Upon separation, a partner can request for separate individual coverage, although at a higher price
- Are cheaper than having individual term life policies for each partner
Whereas if you have two single life insurance policies for you and a partner:
- You have two separate policies are issued to cover each of the insured, each having their own personalized term length and coverage amount
- Coverage continues for surviving spouse, even if one claim is paid because the policies are independent of each other
What happens to a joint life policy after divorce?
With a joint life insurance policy, a divorce might become even more complicated. If a couple wishes to keep their original joint life insurance policy after their divorce, they can do so. However, they have no choice except to cancel the joint policy if they want their coverage to go their separate ways as well.
Upon divorce or dissolution of the relationship, most joint plans will provide a limited period insurability privilege, allowing either of the insured under the original joint policy to request an individual life insurance policy without having to undergo new medical underwriting. The coverage cannot exceed their share of the previous joint benefit, and the premium is always more expensive since it is based on the age of the insured at the time of the request.
Individual coverage provides far greater flexibility in the case of a divorce. Individual coverages can continue to be kept in their own right. Although in most cases, if the individual owners had named each other as a beneficiary prior to the divorce, they may seek to change beneficiaries.
If you’re not married, it’s crucial to talk about joint life insurance with your partner. If you get divorced, joint life policyholders are often entitled to a payout at the time of death, but this may depend on where in Canada they live and whether there is an agreement between them that specifies how joint assets should be divided. For example, someone who has children from a previous marriage might want their ex-spouse to receive some or all of the joint coverage for the benefit of those kids when they die.
It can also depend upon what type of joint plan it is – some plans allow beneficiaries other than spouses while others do not. If you have specific questions regarding divorce and joint life policies, speaking with a financial advisor can help you find the right solution.
Can you get joint life insurance if you are not married?
To put it simply, yes: you don’t have to be married to buy joint life insurance. Couples and common-law partners can buy a joint life insurance policy to ensure that the remaining partner is taken care of after one of them passes away. Alternatively, business partners can purchase a joint life insurance policy to assist the surviving partner in covering business expenses.
You can get joint life insurance coverage if you have an interest (also known as insurable interest) in the life of the other insured. This insurable interest might arise from a personal relationship (such as between spouses or common-law partners) or from shared business interests. As a result, common-law couples and business partners can apply for joint life insurance.
The goal of life insurance is to provide a financial safety net for your loved ones in the event that you or your partner pass away, so you don’t need to be married to consider life insurance.
Frequently Asked Questions (FAQs) about Joint Life and Single Life Insurance Policies
As with all insurance policies, it purely depends on your situation. For example, a joint life policy may be the best solution for you and a business partner, or having two single policies is the better option for two younger and healthy individuals looking to start a family but have different needs and debts to cover in mind.
Joint life policy is cheaper than having two single life policies, making it affordable and accessible to young families or business partners looking for coverage. It’s also quicker and easier than going through the process of securing two policies, so if you and your partner are looking to get covered quickly and with less of a hassle, joint life insurance may be ideal for you.
Joint life insurance only pays out once, but when it pays out depends on the type of joint life insurance you purchase. If you have a first-to-die joint life, the benefit will be paid out upon the first death of either of the insured. If you have a last-to-die joint life, the benefit will be paid out upon the last death of the insured. In each case, it is only one payment of the coverage of the policy.
Depending on the type of joint life insurance you have, you will get your death benefit after the first death in a joint first-to-die policy, or your beneficiaries will receive the death benefit after both partners pass away in a joint last-to-die policy.
A married couple should review their financial goals and interests before deciding whether or not to purchase a joint life policy. Speaking with a financial advisor can help you and your partner figure out if having joint life insurance is right for you.
Getting a joint life policy or combining you and your partners’ two single life policies will reduce costs compared to having two completely separate life insurance policies. If you get a joint policy, you’ll only pay premiums once a month for one policy, versus having two single life policies where you and your partner would each have to pay monthly premiums for your individual policies.
Finding the right life insurance for you and your partner
If you’re not sure what’s the best type of insurance for you and your partner, working with a life insurance advisor can help you find the best solution to fit your particular situation. At Protect Your Wealth, we’ve been providing expert advice for all types of life insurance, including for no medical, term life, or permanent life insurance, 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.
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 and British Columbia, including areas such as Oakville, Ancaster, and London.