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Joint Life Insurance Policies: First or Second to Die

Whether you need to protect your business partner, protect the financial interests of your business, or you want to make sure your spouse is protected (regardless of which one of you dies first) your affordable insurance option could lie in Survivorship life insurance.

Survivorship life insurance (also called second to die life insurance or last to die life insurance) a special policy that insures two lives jointly with just one premium and a benefit that is paid to either the first to die or the second to die, depending on how you structure the policy.

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Joint Policies versus Term Riders
The most often utilized method of covering two or more people with one life insurance policy involves taking out a policy on the person with the largest income or portion of the business interest and purchasing term riders on all the others to be insured. These riders are often limited in benefits, see an increase in renewal premium and don’t offer the same financial protection to all those involved.
An alternative to this scenario involves insuring two people with a joint policy. The rates for a joint policy are generally less expensive than the collective rates of individual policies and—if you choose whole life—coverage will not expire as it would with a term rider. Another advantage is that joint policies often have more lenient underwriting requirements than those that insure one person because the risk is spread out over several lives. Additionally, the premium cost in a joint life policy is determined by the average age of the insureds, which can help to lower the overall premium when one person in the group is significantly older than the others.  One last little perk is that you can decide how your policy is paid out.

First to Die Pay Outs
First to die payouts mean exactly that—the death benefit is paid out upon the first death. This is a popular choice for married couples without heirs. Since the death of one spouse could affect the income of the couple, a first to die payout protects the surviving spouse. In business, the first to die option can provide surviving partners with enough capital to continue the business, buy out the decedent’s shares, or train someone to replace them.

Second (or Last) to Die Pay Outs
Second to die pay out options are often used for estate planning. With second to die the death benefit is not paid until the second life covered with the joint policy is deceased. In this case, the beneficiary is often the estate or children of the insureds. In a business policy, the beneficiary will be the business and the proceeds could be used for business continuation expenses or to buy out the shares of the deceased parties.

Types of Joint Policies
Joint policies are available in the form of term, whole life, or universal life insurance and each has its own benefits.

Term: Term is useful when the primary purpose is to cover the principals in a business for a particular period as like the duration of a loan.

Whole Life: Whole life is best if the purpose of the policy is estate planning, leaving a legacy to heirs, providing a beneficiary with money to purchase or continue a business or to leave an endowment to a favorite charity.

Universal: Universal life is especially beneficial when access to higher growth cash accumulation could be needed in the event of an emergency before death.

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