When looking at life insurance options for you and your family, you may want to consider getting a policy that covers both you and your spouse. There are many benefits to getting this type of policy, but choosing the right one for your needs can be overwhelming at times. There are a variety of terms you might hear thrown around as you shop, like joint life insurance and first to die life insurance. First to die life insurance is a very viable option for married couples – here’s how it differs from traditional joint life insurance, as well as the benefits of this option.
What is first to die life insurance?
First to die life insurance covers both you and your spouse, however, in many ways, it works more like an individual life insurance policy. A first to die life insurance policy will pay out when the first person in the marriage dies, regardless of who it is. The other person will receive their benefits and can use them as they see fit. Many people use this to cover funeral expenses, pay off their loved one’s debts, or as an income replacement. Once the first person has died and the benefit has been paid out, the policy is over. If the remaining spouse would like life insurance, they will need to apply for another plan. These policies are excellent for couples who both work and who share financial responsibilities, and who would likely struggle financially if their spouse were to die.
How is it different from traditional joint life insurance?
First to die life insurance is different from traditional joint life insurance in many ways. Although both types of policies cover married couples, they operate differently. Joint life insurance is sometimes also referred to as second to die life insurance or survivorship life insurance. In this instance, the benefit will pay out when both partners have died. This will allow children and other remaining family members to pay estate taxes and debts. However, this solution does not work as well if both members of the couple rely on each other financially. It’s important to note that with joint life insurance, the surviving spouse still needs to pay the premium on the life insurance policy.
What are the benefits of first to die life insurance?
There are many advantages of first to die life insurance over traditional joint life insurance. Joint life insurance was more popular back in the days when only one spouse was the breadwinner and the other stayed at home with children. However, times have changed, and now in most families, both spouses work and contribute to the family. With first to die life insurance, you can feel confident knowing that you will still be able to take care of your children and pay all of your bills, even if you lose the help of your spouse’s income.
Additionally, first to die life insurance is very helpful for paying off your spouse’s debts or any joint debts that you may have together, which will fall to you after they pass away. Since many people would not be able to afford this large expense, first to die life insurance will give you peace of mind. It can also be used to cover funeral expenses, which can be quite hefty in many cases.
Many people also like joint life insurance policies because they are usually cheaper than taking out two separate policies for both of you. It’s much less work for a company to evaluate and assess one insurance policy for both people than two separate insurance policies, so, therefore, the combined premium will typically be lower. Additionally, you know that one of you will be getting coverage for your entire life, as opposed to term life insurance, which will expire after a certain period.
Are there disadvantages of first to die life insurance?
There are some notable disadvantages of first to die life insurance, and just like with any insurance plan, you should always think carefully before purchasing it. The most obvious downside to first to die life insurance is that once the first spouse dies, the remaining spouse has no coverage. They will need to get another policy to avoid leaving their children and remaining family at risk, but this can get expensive, particularly when you are already juggling the financial challenges of losing a spouse. Since premiums tend to go up as you get older, the premiums on your new plan are likely to be higher than they would have been when you and your spouse originally took out insurance.
The other downside to first to die life insurance over a joint life insurance policy is that it is usually slightly more expensive. This is because there is more financial risk involved for the insurance company in the relatively short term because they will need to pay out the entire sum when the first person dies.