Can you explain how joint life insurance works?
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Asked February 10, 2014
A joint life insurance policy is a lot like a last-survivor life insurance policy, in that the policy is written for two partners. The difference is that a joint policy matures after the death of the first partner, while a last-survivor policy pays out after the death of both parties. Joint life insurance is less expensive than purchasing two separate policies, yet serves the same purpose as two policies would fill.
Joint life insurance is available as both term and whole life formats. If you are using a joint term life policy, make sure that it contains conversion options, and that you understand what penalties a conversion carries. Many times, a couple will open a term life policy only to realize that they would be better served by a permanent life policy.
Joint life insurance is available to couples, business partners, and domestic partners. Even unmarried couples may be able to get a joint life insurance policy if it can be shown that they share a vested interest in property or family. For startup businesses, a joint term life insurance policy will protect the interests of the business if one of the partners dies during the initial growth period.
One reason a joint term life policy might be a better choice is in a situation where the partnership gets dissolved. Whether it is divorce, a business split, or whatever, the split would necessitate having to terminate or cancel the joint policy, resulting in a loss of the premiums paid as well as the coverage the policy provided. .
This type of policy only has a single payout, regardless of which one dies first. If both people perish at the same time, the policy will make a single payout, either to named beneficiaries or to the estate of the insured. If only one of the partners passes away, the surviving one will no longer have life insurance, and that could be limit the choices for a new life insurance policy for the survivor.
Answered February 10, 2014 by Anonymous