There are three ways to set up the insured(s) of a life insurance policy: Single, Joint-First or Joint-Last.
This article will look at one of those three ways: Joint-First. So, what is a Joint-First-To-Die (“JFTD” or “Joint-First”) policy?
Joint-First Life Insurance is a certain policy structure in which two individuals are insured under one insurance policy.
A Joint-First life insurance policy is commonly used for spouses whose purpose for having insurance is to provide income replacement and lifestyle guarantees if one them were to pass away. Under this type of policy, there is one application, one policy, one premium payment, one death benefit, but two people are insured. If one of the people insured were to pass away while the policy is in force, the death benefit gets paid to the beneficiary and the policy is closed.
What happens if both of the insured die at the same time?
In an instance where both of the insured pass away at the same time, there is still only one death benefit paid. If both of the insured have the same beneficiary named, then the order in which they died is moot as that beneficiary will receive the death benefit regardless. However, if the two people insured have different beneficiaries, the insurance company has to make a determination as to who passed away first. If this is inconclusive, then they will deem the older of the two insured to be the one who deceased first, meaning their beneficiary is the one who receives the life insurance proceeds (death benefit).
What are the benefits of a Joint-First life insurance policy?
This is a more cost-effective approach than having both spouses apply for their own policy and pay two premiums. Based on their objectives and purpose for having the insurance, the one death benefit may be suitable for their situation and this arrangement fits perfectly for them. However, it is important to know that because there is only one death benefit paid, the surviving spouse would no longer have insurance coverage once the first insured passes away. There are also instances in which Joint-First life insurance is used in the corporate space for business planning and succession purposes. However, that is beyond the scope of this article.
Summary
When looking into your life insurance options, it is important to know the differences in types of insurance policies and how policies can be structured. Life insurance is not a one-size-fits-all; getting professional advice as to your options is integral in securing the insurance coverage best suited for you and your loved ones.
Click here to view our article on one of the other structures: Joint-Last.
For more information on this, please contact Jeff Graham at (604) 363-7549 or jeff@firstoakfinancial.ca.
DISCLAIMER: this commentary is provided for general informational purposes only and does not constitute financial, insurance, investment, tax, legal or accounting advice.