Understanding the advantages and disadvantages of Joint Life (JL) can help any consumer make a more educated decision of what policy works best for them. This article gives a breakdown of each.
Advantages
In the family market, a JL/SL combination may provide a more cost-effective match with insurance needs than two separate single-life policies on the spouses.
In the business insurance market, JL may eliminate the need for redundant coverage when the need is simply to insure the first death among several lives.
Disadvantages
Unless the JL policy is coupled with a guaranteed insurability rider, all coverage ceases upon the first death.
The cost of a JL policy is greater than the cost of a single life policy with the same face amount because the insurer must pay the benefit at the first death of two insureds. The expected time until the first death of two insureds is less than the expected time to the death of either insured separately. For example, assume that the life expectancy of a fifty-five-year-old is 23.8 years. However, the expected time until the first death of two fifty-five-year-olds would be less, approximately 17.6 years. Therefore, all else being equal, an insurance company would have to charge roughly 35 percent more in annual premium for the joint life coverage than for a single life policy with the same death benefit because they expect the insurer will have to pay the joint life death benefit about six years sooner than they would have to pay the single life death benefit, on average. However, if the alternative is to insure both lives for the same face amount as the joint life policy, the annual premium cost should be about 20 percent less than the combined cost of the two single life policies.
A number of important ownership issues and tax traps await the unwary. Failure to adhere to certain guidelines can have adverse tax consequences.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM