Joint Life Insurance Policies: First or Second to Die

Do you need to protect your business partner or the financial interests of the business itself? Do you want to make sure your spouse is protected, regardless of which one of you dies first? Or, do you simply want to leave a legacy, aside from enough money to cover final expenses, for your children or other heirs?

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If you answer is "yes," to any of the above, you probably also want to do it as reasonably priced as possible. The answer may be a special joint policy in which both of you are covered with one premium, but the benefit is paid to either the first to die, or the second to die, depending on how you set it up.

Joint policies—better than term riders, but seldom discussed
The most common method of covering two or more people with one insurance policy is to take a policy on one person—presumably the one with the largest income or portion of the business interest—and purchase term riders on the other people you want to insure. The drawback to this is that if a person covered by the rider is the first to die, the beneficiary only receives the amount of the rider. Also, if the person outlives the rider, the renewal often gets a yearly increase in the premium.

A better way to insure two people is with a joint policy. The rates are generally cheaper than insuring both on individual policies, and—if you choose whole life—it doesn't expire like a rider. Also, the price is determined by the average age of the insureds and often has more lenient underwriting requirements than simply insuring one person. Finally, you get to choose how it will be paid out.

Rationale for First to Die
The first payout choice for joint insurance is "first to die." You would choose this route if you want to make sure your spouse is provided with the means for a living, but won't need a large life insurance policy when he or she dies later on. As a business person, you would choose first to die in order to provide your partners with enough capital to continue the business, buy out your portion, or train someone to replace you.

Rationale for Second (or Last) to Die
Second to die (aka, survivorship or survivor) is a joint policy more often used for estate planning. You would have other funds or a separate policy to pay final expenses in the event of the death of the first insured. When the 2nd—or last insured—dies, the beneficiary will receive the money and can use it to pay estate taxes or purchase or maintain your business.

Choosing your joint policy
Joint policies are available in Term, Whole life, or Universal. The following scenarios will help you determine which type is best for you.

Term: Use term if the primary purpose is to cover the principals in a business until a loan is paid off.

Whole Life: Use whole life if the purpose is for estate planning; leaving a legacy to your heirs; providing your beneficiary with money to purchase or continue your business; or if you want to leave an endowment to a favorite charity.

Universal: Choose universal if you are doing estate planning but also want a higher growth cash accumulation that you can use as a source of emergency cash in later years.