Joint first to die life insurance insures two people, and pays only on the first death. Is this a good idea? It turns out that in Canada, the answer is generally, no.
If you’re looking for life insurance for your family, say two spouses, then you may think you only need life insurance when the first person passes away. And since there’s only one death benefit, hey, should be cheaper, right? Well, again, it turns out the answer is again, not really.
First, some history
Joint life insurance pays on the first person’s death – which means there’s an increased probablity of paying a death claim earlier (since there’s now two people who can die earlier instead of one). So a joint first to die life insurance policy will naturally be more expensive than a single insured.
But what about a joint first to die vs two individual policies? Well, it turns out that generally, joint first to die is only 5% cheaper or less, than two individual policies. Why? That’s where the history comes in. Over the years companies have tried to become more competitive with joint first to die life insurance. A long time ago, companies introduced a benefit on joint first to die policies, where if the first person passes away and the second person passes away at the same time, then two death benefits are paid. And another benefit is also common on these policies where if the first person passes and the second person survives, then the second person can automatically, without a medical, get their own new individual policy at that time.
That’s pretty much the same as two individual policies. Both the Joint First to Die and two individual policies pay a death benefit if one person passes. Both pay two death benefits if both pass at the same time. And both pay one death benefit and allow the second person to still have a policy if one person passes and the other survives. Thus from an insurance perspective, they’re close (but not exact, more on that in a second), and thus the premiums are going to be close. Again, you should expect that a Joint first to die policy is 5% or less than the price of two individual policies.
So if the insurance is ‘close enough’, why not save the 5%? If it’s even $1 cheaper, makes sense? Well, there’s some problems with joint first to die, and it’s our opinion that these deficiencies are not worth the very minor savings.
Why individual policies are better than joint first to die:
All of these deficiencies are things you may not care about most of the time – hey, you saved 5% or less. But if you run into a situation where these above deficiencies come about, then you’ll be very happy to have two individual policies – it’ll have been worth way more than the small amount saved over the joint first to die.
All of that together – the fairly inconsequential savings, and the serious drawbacks when things go wrong, are why we don’t recommend joint first to die policies and instead suggest two individual coverages.