Combination Life Insurance Plans: Joint & Survivorship

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

Individuals seeking life insurance coverage can purchase it individually or with a spouse. In this lesson, you will learn about combination life insurance plans.

What Are Combination Life Insurance Plans?

Let's meet Rose and David who recently married and would like to purchase life insurance. They have spoken with an agent who suggested that a combination plan might be best for them, but they're not sure they understand how this type of policy differs from an individual life insurance policy. Let's see if we can help Rose and David with this problem.

Rose and David have several options for life insurance. They could each apply for an individual policy, or for a joint insurance policy, or a survivorship policy. Individual insurance will be more expensive than either the joint or survivorship options as each insured has his/her own policy.

Let's examine each of these types of insurance in more detail.

Individual Insurance Policy

An individual insurance policy insures the life of only one individual and a death benefit would be paid when that individual dies. An individual insurance policy would be more expensive for Rose and David as they would be paying premiums for two policies.

Let's assume that Rose and David have individual policies and David dies. In this case, the insurance company would pay the death benefit proceeds to whomever he designated as his beneficiary or the individual entitled to receive his death proceeds. If we assume that Rose was his beneficiary, she could use the money to help with child care expenses or to pay off her mortgage. When Rose dies, her insurance company will also pay a death benefit to her beneficiaries.

Joint Insurance Policy

A joint insurance policy, also known as first-to-die insurance, is one that covers two lives but only pays out once, usually when the first insured dies. Let's assume that Rose and David have a joint insurance policy and David dies. Rose would receive the death benefits from the policy and could use the proceeds for child care, to pay off the mortgage, or other household expenses.

A disadvantage of a joint policy is that the surviving spouse, in this case, Rose, would not have any life insurance of her own after the insurance company paid out the proceeds following David's death. Rose could have difficulty obtaining her own life insurance depending on her health at the time of David's death.

Another consideration is what happens to the joint policy if Rose and David were to divorce. Some joint insurance policies offer the opportunity to split the existing policy into two individual policies in the event of divorce. Some insurance companies insist that the couple be divorced for a certain period of time before they are eligible to apply for individual policies.

Survivorship Insurance Policy

A survivorship or second-to-die policy also covers two lives and pays a death benefit when the second or last insured dies. For example, if David dies, Rose would receive no proceeds from the policy. Only upon Rose's death, would her beneficiaries receive any benefits from the policy.

This type of policy is best suited for those couples with a significant amount of wealth as the surviving spouse would not receive any benefits. It could be used by the couple's children to pay any estate taxes that could arise on the death of the surviving spouse.

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