Life insurance agents frequently get asked by married couples whether they should they be on the same life insurance policy. There are only a few instances where a “joint” policy makes sense. We’ll touch on those scenarios, and when you may want to consider individual policies.
Some carriers offer “spouse riders” or “secondary insured” riders. The concept here is to have a primary insured and a secondary insured on a single contract. The one true advantage is a reduced fee for having only one policy. If there is a short-term and very specific need for the coverage, this may be an okay way to go. However, there are multiple factors still to consider.
Individual Policies: Greater Flexibility with Changes in Coverage
Keeping the policies separate provides you more flexibility with any future coverage changes, and will make it easier to execute reductions or changes to your policy. Another consideration is if the primary insured dies, the coverage for the secondary might be lost at the time of death. Look in your contract to see if there is an option to continue coverage as a secondary insured if the primary insured should predecease.
If a couple were to divorce and have a single, joint policy, you may have lost some of the flexibility and discretion you might need. The primary policyholder can just remove the other spouse from the policy. Many times carriers will not let the rider convert into a standalone policy. That’s because it was only an add-on to the original (base) policy.
Difficulty Converting to Another Policy
If you own joint policies and you want to convert to permanent coverage, you might find yourself in the situation where both policyholders cannot convert to another policy. Many contracts only allow the primary insured on the policy to convert to a whole life or universal life policy. When your coverage is independent of each other, you have full discretion to make changes to coverage or convert to a permanent plan. In most term policies, conversion is typically a contractual privilege.
Joint Policies For Advanced Estate Planning Needs
The most common instances when couples should be covered on the same life insurance policy is when there are advanced planning and estate planning needs. The life insurance industry figures it’s cheaper and easier to insure two lives on a single contract when the payout will be used for estate taxes on inheritances.
The money is not needed at the “first” death. That’s because of the ability to own property jointly, or passing ownership of property or estate value to the surviving spouse. In these cases, what you will see used are “survivorship” policies, also known as “second-to-die” policies. What this means is that life insurance proceeds are paid at the time of the second death. In turn, the beneficiaries and heirs can use the life insurance funds to pay estate taxes and retain family properties, heirlooms, and even businesses.
No special licenses or training is required to sell these policies. Oftentimes, when ”Second-to-Die” policies are sold, we’ll see an estate tax attorney and/or a family accountant involved. Typically, the clients for these policies are high net worth clients.
A few existing companies will bundle coverage for a family, which is called “family plan” life insurance. In the most traditional sense, you’ll find the dad or male as the primary insured, and the mom/female as a secondary. You can also have children on the same contract. This packaging and bundling makes it easy for the client. However, oftentimes there are limited amounts of available coverage. There’s also a lot of extra detail and fine print you’ll want to pay attention to.
Unless you have a unique scenario, or a large estate you plan to pass on, you will almost always benefit from individual life insurance contracts. The individual standalone policies give you complete autonomy and discretion to manage your insurance needs in the short- and long-term. One big step in planning and having financial independence is the ability to maintain control and ownership of your decisions.
When it comes time to start your research and determining which plan you should ultimately go with, do your research, invest some time in your product choices, and plan your options. One of the best resources for getting an education and quality assistance is LeapLife. We have a wide breadth of articles and tools to help you work through your research. We also have a staff of life insurance licensed representatives that will assist you with your education, and be able to help you secure the best policy for you, joint or individual.