Joint first-to-die life insurance in Canada provides financial protection for couples when the first spouse passes away.
But how does this type of insurance work? What are the pros and cons? Who is it best suited for? This guide examines everything you need to know about joint first-to-die life insurance.
What is Joint First-to-die Life Insurance?
Joint first-to-die life insurance in Canada covers two people under a single policy and pays out the full death benefit when the first insured individual dies. The payout is made directly to the surviving partner or named beneficiaries.
This can provide funds for income replacement, debt repayment, business buyouts, and financial stability when one member of a couple passes away prematurely.
These policies are available from most major Canadian life insurance companies as either term life insurance or permanent life insurance:
- Term life insurance offers pure protection for a set period like 10, 15, 20 or 30 years. It does not build cash value.
- Permanent life insurance provides lifetime coverage along with tax-advantaged cash value that accumulates over time. Types include whole life, universal life, and participating life.
The critical feature of joint first-to-die insurance is that it can only pay one death benefit throughout the policy. Once a claim is made, the policy terminates.
How Does Joint First-to-die Life Insurance Work in Canada?
Joint first-to-die life insurance works through a single application covering both partners. When the first insured individual dies, the surviving policyholder receives the entire sum insured in a tax-free lump sum payout.
The policy then terminates unless the survivor exercises conversion options. Many policies allow converting to an individual permanent policy with no underwriting within 30-90 days after the first death.
This allows continuing coverage later in life when new insurance would be much more expensive or unattainable.
Some insurers offer a term conversion option to a new term policy up to the original coverage amount with no medical underwriting upon the first death.
These conversion privileges provide essential flexibility for the surviving spouse. However, not all joint first-to-die insurance policies guarantee conversion options, which is an important consideration when choosing a policy.
What Are the Pros and Cons of Joint First-to-die Life Insurance?
Joint first-to-die life insurance in Canada offers several advantages but also has some disadvantages:
Pros of Joint First-to-die Life Insurance:
- Cost savings compared to two individual policies
- Allows an unhealthy person to get coverage
- Built-in permanent and Term conversion options
- Access to living benefits like critical illness insurance
- Potentially higher death benefit limits
Cons of Joint First-to-die Life Insurance:
- Inflexibility if the relationship changes
- Limits on qualifying for preferred rates
- Earlier age cut-offs for privileges based on single equivalent age
- No cash value accumulation on term policies
- Longer premium payment commitment
That said, joint first-to-die insurance can provide affordable spousal protection but may not be ideal if flexibility is paramount.
Who needs Joint First-to-die Life Insurance in Canada?
Joint first-to-die life insurance is best suited for:
Younger Couples
Joint first-to-die life insurance can be an ideal policy for younger couples who need affordable mortality protection. Even those with limited budgets can gain substantial coverage to protect their spouse and future plans. The lower premiums provide crucial life insurance at a fraction of the cost of two individual policies. This makes joint first-to-die a great way for young couples starting out to gain financial security.
Business Partners
For business partners who fund buy-sell agreements, joint first-to-die life insurance can provide an affordable way to support the business transition upon the death of one partner. Rather than each partner needing substantial individual life insurance policies, they can take out a joint policy to cover the buy-sell agreement for a lower premium cost. This makes the insurance more accessible for partners while still providing for the business succession plan.
Uninsurable Spouses
If one spouse has health issues that make it impossible to qualify for individual life insurance, joint first-to-die can provide an alternative. Since underwriting is simplified for the joint policy, coverage can be secured even if one spouse is considered uninsurable. This allows the healthy spouse to gain needed protection in case of their partner’s death.
Budget-Conscious Families
For families needing substantial life insurance but unable to afford two individual policies, a joint first-to-die policy can offer premium savings. The cost efficiencies allow budget-conscious households to protect their family’s financial future at a reasonable rate. The coverage can provide peace of mind even for families with limited budgets.
Remarried Couples
For remarried couples looking to cover just the new spouse, joint first-to-die presents an affordable option. Rather than covering both spouses equally, the policy only pays upon the death of the new spouse. This tailored coverage provides protection for the new marriage without unnecessary costs.
Dependent Adult Children
Parents with dependent adult children can also benefit from joint first-to-die insurance. The coverage can offer protection and support for dependent children if both parents were to pass away. The lower premiums make this accessible even for parents on fixed incomes.
Where Can You Buy Joint First-to-Die Life Insurance in Canada?
Be sure to explore all your options when looking to buy joint life insurance coverage:
- Insurance Brokers – Brokers can access policies from many top insurance companies. This allows them to help compare and identify the right affordable policy for your needs.
- Insurance Companies – You can buy policies directly through insurance company websites, agents, etc. However, this limits you to only that insurer’s offerings.
- Financial Advisors – Some advisors sell joint life insurance, but usually only have access to policies from certain partners.
- Online Marketplaces – Websites allow you to compare policies from multiple insurers in one place. But broker access is often still broader.
Canadians have ample options to purchase joint life insurance coverage. Working with an experienced broker is highly recommended to help compare policies across multiple carriers.
How Do You Get the Best Joint First-to-die Life Insurance Rates in Canada?
Getting the lowest rates on joint first-to-die life insurance requires some smart shopping techniques. Prioritizing health and comparing providers are key steps to maximize savings. Follow these tips when shopping for joint first-to-die life insurance to maximize savings:
- Compare quotes from at least 5-10 different insurance providers
- Prioritize preferred underwriting by having both partners undergo extensive medical underwriting
- Opt for longer 20 or 30-year terms over ten years
- Reduce premium frequencies from monthly to annually
- Improve health through lifestyle changes
- Review exclusions and buy optional riders to fill gaps
- Bundle policies together to qualify for multi-policy discounts
The most essential strategy is having both partners qualify for preferred underwriting through medical review. This allows access to the absolute lowest joint rate classes. Following these tips will help you secure optimal, affordable coverage.
How Much Does Joint First-to-die Life Insurance Cost for Canadians ?
The cost of joint first-to-die life insurance in Canada can vary depending on a few key factors. Insurance companies look at the following details to determine your monthly or yearly premiums:
- The ages of both individuals
- Health ratings and medical histories
- Amount of total coverage
- Length of the policy term
- Riders like critical illness or disability
Here are sample monthly costs for $1 million of coverage for healthy, non-smoking couples:
| Term Length | 30-year-old Couple | 40-year-old Couple | 50-year-old Couple | 60-year-old Couple |
| 10-year term | $41 | $80 | $205 | $649 |
| 20-year term | $66 | $142 | $386 | $1,328 |
| 30-year term | $128 | $277 | $775 | N/A |
Joint first-to-die premiums can be 5-30% lower than two individual policies. However, health conditions may reduce potential savings.
How Does Joint First-to-die Insurance Compare to Other Policy Types?
While joint first-to-die insurance offers cost savings, other policy types have advantages that may be more appropriate depending on needs:
- Joint last-to-die life insurance – Better if the goal is to leave a large inheritance but much higher premiums
- Individual policies – Offer more flexibility if the relationship changes, but cost more
- Group life insurance – Lower rates, but coverage ends upon leaving employer
- Term life insurance – Affordable temporary coverage but no lifelong protection
- Permanent life insurance – Lifelong coverage and tax-deferred cash value accumulation
There is no one-size-fits-all best life insurance product. The right solution depends on the personal financial situation, budget, and coverage duration required.
How Does the Application Process Work for joint first-to-die life insurance in Canada?
Here is an overview of the process when applying for joint first-to-die life insurance:
- Determine Coverage Amount: Assess your financial situation and obligations to decide the appropriate amount of coverage you need.
- Get Quotes: Work with an insurance advisor or broker to get premium quotes from multiple providers for comparison.
- Select Policy Details: Choose your preferred insurance carrier, policy length, included benefits, optional riders, and premium costs.
- Complete Applications: Both partners need to complete detailed applications with health, lifestyle, family history, etc.
- Undergo Assessments: Be prepared for potential medical exams, bloodwork or other assessments required by the insurer.
- Await Underwriting Decision: The insurance company will review all materials and decide whether to approve and issue a policy.
- Pay Initial Premium: If approved, the coverage can be put in place once you pay the first premium bill.
- Review Coverage Annually: Re-evaluate your policy each year as your life circumstances evolve.
The application process typically takes 4-8 weeks. Additional medical exams or records may be requested during underwriting.
What Questions Should You Ask When Evaluating Joint First-to-Die Life Insurance?
When considering joint first-to-die life insurance, important questions to ask include:
- Does the policy allow conversion to permanent life insurance without new underwriting of health declines? What is the conversion deadline age?
- Is there an option for the survivor to purchase a new term life policy upon the first death without new underwriting? What are the qualifications and restrictions?
- What are the eligibility requirements related to age, health, smoking status, or other factors?
- What exclusions exist that may disqualify death claims under certain circumstances? Are additional riders available to cover exclusions?
- Does the policy accumulate any cash value if structured as life insurance in Canada ? How does this impact premiums?
- What optional riders are available, such as waiver of premium, accidental death, or critical illness? How much do they add to the costs?
- What discounts may be available, such as for paying premiums annually, bundling policies, or applying online?
- What is the process if the relationship ends in divorce? Is there an option to split the policy?
- Thoroughly understanding the fine print is crucial when evaluating the appropriateness of joint coverage.
What Mistakes Should Be Avoided When Applying for Joint First-to-Die Insurance?
When going through the insurance application process, common mistakes to avoid include:
- Not accurately determining the right amount of total coverage required. Failing to account for all income replacement needs and debts can leave loved ones underinsured.
- Neglecting to compare multiple carriers and policy options. Rates and features can vary widely across providers.
- Skipping recommended medical exams that could help obtain preferred underwriting discounts. Better health equals lower premiums.
- Providing incomplete or inaccurate information on applications. This can lead to denial of claims down the road.
- Not reading and understanding exclusions and limitations related to certain health conditions or causes of death.
- Overlooking the differences between term lengths. Opting for ten years means much higher renewal rates later.
- Forgetting to re-evaluate coverage as life circumstances change. Needs to evolve over time.
- Not consulting an experienced advisor. Navigating joint insurance intricacies without expertise can lead to mistakes.
Avoiding common pitfalls takes guidance from seasoned life insurance professionals.
Why Work With an Advisor for Joint First-to-die Insurance?
Key reasons to involve an advisor when exploring joint first-to-die insurance include:
- Knowledge – Advisors are experts in joint policy intricacies, tradeoffs, pricing, and regulations that consumers typically lack. This prevents costly mistakes.
- Policy Access – Advisors have access to the full marketplace of policy options across dozens of insurance carriers. This enables finding the optimal policy.
- Objectivity – Unlike tied agents, independent advisors offer unbiased guidance on the best solutions for specific circumstances.
- Ease – Advisors simplify the complex process. They handle applications, underwriting, negotiations with insurers, and explain policies in plain English.
- Ongoing Support – Advisors provide ongoing policy management, updates as needs change, and assistance with everything from questions to claims.
The right advisor brings expertise and advocacy that ensures the ideal joint first-to-die life insurance solution.
Frequently Asked Questions
What happens to joint first-to-die insurance after the first death ?
The policy terminates after paying the death benefit to beneficiaries after the first insured’s death. The surviving spouse would need to apply for a new individual policy.
What are the advantages and disadvantages of joint first-to-die insurance in Canada?
Advantages are lower premiums than two separate policies, easier qualification if health issues exist, and built-in conversion options. Disadvantages are lack of flexibility if relationships change, limits on preferred underwriting, and age-related provisions based on single equivalent age.
Who is joint first-to-die insurance best for in Canada?
It works well for younger couples, business partners, those with budget constraints, second marriages, couples where one is uninsurable, and financially dependent parents and children.
Why would a Canadian couple choose joint first-to-die life insurance?
Reasons to choose it include lowering life insurance costs, maximizing total coverage amount, allowing an unhealthy spouse to qualify, and efficiently funding buy-sell agreements.
When should you avoid joint first-to-die insurance in Canada?
Avoid it if relationship stability is a concern, if large separate payouts are desired, if estate planning goals don’t align, or if you want permanent coverage with cash value accumulation.
Where can Canadians purchase joint first-to-die life insurance policies?
Policies are available from insurance brokers, directly from insurance companies, financial advisors, and online secure tool IDC insurance.
What is the typical cost of joint first-to-die life insurance policies in Canada?
Costs vary based on ages, term length, and death benefit amount. Sample monthly premiums for $1 million coverage: 30-year-old couple – $41 to $128; 40-year-old couple – $80 to $277; 50-year-old couple – $205 to $775.
What are tips for saving money on joint first-to-die life insurance ?
Tips saving money on joint first-to-die life insurance in Canada include comparing quotes, choosing longer terms, improving health, looking for discounts, paying annually, and bundling policies.
Can you split a joint first-to-die policy in Canada upon divorce?
Some policies allow splitting after divorce, usually within a certain time period. Other policies require completely reapplying if the relationship ends.
Is the payout from joint first-to-die insurance taxable in Canada?
In most scenarios, the death benefit payout to the surviving spouse or beneficiaries is not taxable for Canadian policies.
Can you convert joint first-to-die life insurance policies to permanent insurance?
Many policies allow converting to permanent life insurance later regardless of health changes. This provides flexibility as your needs evolve.
Who is joint first-to-die insurance best for in Canada?
It works best for couples with debt replacement, income replacement between earners, or business buy-sell needs. Individual policies may be better if you need separate payouts or maximum age cutoffs.
How long does joint first-to-die insurance pay out after death?
The insurer will pay the claim within a few weeks of receiving proof of death documents and verifying beneficiary information.
Can you split a joint first-to-die insurance policy into two individual policies?
Some insurers allow splitting joint policies, but others don’t. Check if this flexibility is available, as your situation may change.
Do both insureds on a joint first-to-die policy need to qualify medically?
Yes, both applicants must meet the insurer’s health criteria. If one person is uninsurable, joint coverage may not be an option.
Is the payout on joint first-to-die life insurance policies taxable?
Like other life insurance, the tax treatment depends on who owns the policy. Payouts to named beneficiaries are generally non-taxable.
Does joint first-to-die insurance build cash value?
No, these are term life insurance policies that provide temporary protection. Permanent life policies are required to build cash value.
Can you get a joint first-to-die term to age 100?
Joint coverage is usually available up to the age of 90 or 95. Term to 100 is rare but offered by some insurers – shop policies with longer terms.
What age is best to buy joint first-to-die life insurance in Canada ?
Your 30s or 40s allow maximum time to pay off debts before age cutoffs apply. I am waiting until older ages increase premium costs.
Does smoking affect joint first-to-die insurance rates in Canada ?
Yes, if either insured is a smoker, tobacco use will result in much higher premium costs. Both applicants should be non-smokers.
Is joint first-to-die or second-to-die better?
First-to-die works well for debt repayment needs before the survivor retires. Second-to-die can provide income during retirement.
