When you have a partner and want to buy life insurance, you have two options: you can each purchase a single life insurance policy or you can purchase a joint life insurance policy.
A single-life insurance policy covers one person. In other words, it covers one life (usually yours or your partner’s) and will pay out a claim if the individual listed on the policy dies.
In contrast, a joint policy covers two lives. This means that if you and your partner have a joint life insurance policy, it will pay out a claim if either you or your partner dies.
Following us? Good.
There are 3 main types of joint life insurance policies
Combined life insurance policies cover both you and your partner. They operate like having two separate policies (2 separate death benefits will be paid), but there’s a discount on the policy for combining them into one. This discount is often ~$3–5 per month (because insurers charge only a "single policy fee" on combined policies).
Looking for even more? Manulife adds an additional 3% savings when you select the same coverage amount and policy length for you and your spouse. They’re the only ones in Canada to offer the extra 3% savings.
First-to-die policies pay a claim once the first member of the couple dies. So if either you or your partner passes during the term of your insurance policy, the policy will pay the claim.
As you may have guessed, first-to-die policies act more as “income replacement” policies, just like how a traditional term insurance policy does. They cover beneficiaries if a key income earner were to pass. They work for families with a mortgage or other debts, young children, or anyone who needs a stable income to maintain their lifestyle.
The second-to-die policies pay only when the second person on the policy passes. Also called survivorship policies, the death benefit for these policies is paid out once both policyholders have passed.
If you’re in a committed relationship, it may seem obvious to take out a joint policy. After all, you and your partner are bonded for life, right?
But let’s talk about the pros and cons of joint life insurance policies relative to single life insurance policies.
In general, it should be cheaper for your insurer to underwrite two people at once vs. two people individually. Because of this, you usually get a small discount for reducing the operational burden for your insurance company.
In addition, if you have a first-to-die or second-to-die joint policy and both of you die during the term of the policy, your insurance company won’t have to pay out as much money as they would have if you both had single policies. After all, with joint policies, the insurance company pays only one claim.
This should decrease the price of a joint policy a bit. But remember that it’s very unlikely that both you and your partner will die during the term of your policy, especially if you’re a younger couple. As a result, you’ll probably get only a small discount on the price of a joint policy. (You better hold off on that mega shopping spree.)
The downside of a joint policy is that if the relationship breaks down, you can’t simply split the policy between the two of you. In most cases, your joint policy would cease and both you and your former partner would need to buy new single policies, which would come at a higher cost.