Joint life insurance is a single policy covering two people, often spouses or common-law partners. If one partner passes away while the policy’s active, the beneficiary gets a tax-free, lump-sum payment that they can spend however they wish.
How does joint life insurance work in Canada?
Joint life insurance provides a death benefit ensuring a financial safety net for your partner, surviving spouse (or other dependents) if you pass away.
Here’s how joint life insurance policies works in Canada:
- The couple applies at the same time and both partners are covered under the same exact terms (coverage amounts, term lengths, etc.)
- The couple pays one premium per month, with only one death benefit payout
- The policy expires after the payout so the surviving spouse will need to apply for another policy if they need insurance coverage
- Joint life insurance policy can be either temporary or permanent
What type should you get? Term works best for couples and families; it provides for “temporary” dependents, like your kids before they grow into adulthood. It’s also useful when debt, like your mortgage, is at its highest.
What happens to a joint life insurance policy after divorce?
A joint life insurance policy can be tough to divide if you and your partner decide to divorce or separate. This is the main reason that many life insurance experts advise against combined insurance policies. Here are your options if you need to split up a joint policy:
- Name each spouse as the beneficiary in trust to manage the financial benefit on behalf of the kids
- Keep the policy as-is (i.e. forgo splitting it)
- Transfer the policy to one spouse
- Cancel the policy outright
- If your partner doesn’t agree to split the policy, you may be out of luck
Types of life insurance for couples
There are three main types of joint life insurance policies: first-to-die joint life insurance, last-to-die joint life insurance, combined life insurance.
What is joint first-to-die life insurance?
Joint first-to-die is a type of life insurance policy that pays out a death benefit when the first partner passes. The policy ends after the payout, so the surviving partner would have to apply for a new policy if they want one.
What is joint last-to-die life insurance?
Joint last-to-die life insurance pays out a death benefit when the last surviving partner passes. Last-to-die is also called survivorship life insurance.
This type of life insurance for couples is best used to support the kids because the surviving partner doesn’t get a payout when the first person passes.
What is combined life insurance?
Combined life insurance isn’t a joint policy at all; it’s two combined insurance policies with different terms, conditions and payouts. When each partner holds their own policy, two separate death benefits can be paid out.