Joint last-to-die life insurance is a powerful estate-planning tool for Canadian couples. This coverage pays out a death benefit only after both partners have passed away, ensuring that a financial legacy can be efficiently passed on to the next generation. Here is what you need to know about the costs, the tax advantages, and whether it is the right move for your family.
What is Joint Last-to-Die Life Insurance?
Joint last-to-die (JLTD) life insurance is a single policy that covers two individuals, typically spouses or common-law partners. Unlike joint first-to-die policies, the death benefit is not paid after the first death. Instead, the death benefit is paid to the named beneficiaries only after the last surviving insured person passes away.
The primary uses of this type of joint last-to-die life insurance policy are:
- Providing liquidity for end-of-life expenses and taxes when the second spouse dies
- Paying estate administration costs like probate fees
- Covering outstanding debts and mortgages
- Funding charitable bequests
- Leaving inheritances for beneficiaries
Additionally, premiums are typically lower compared to two separate permanent life insurance policies. This cost efficiency makes last-to-die insurance an attractive option.
2 Common Types of Joint Last-to-Die Insurance in Canada
Joint last-to-die life insurance policies are commonly structured as permanent life insurance (whole life or universal life). Term plans are also available, but rare in Canada.
Joint Last-to-Die Whole Life
This type of policy offers the highest degree of certainty. Key features include:
- Guaranteed Premiums: The premiums are fixed and guaranteed never to increase for the life of the policy.
- Guaranteed Cash Value: The policy builds a tax-deferred cash value at a guaranteed rate. This cash value can be borrowed against in the future if needed.
- Potential Dividends: If it’s a “participating” policy, it may earn dividends from the insurer’s profits. These are not guaranteed but can be used to reduce premiums, purchase more coverage, or be taken as cash.
Best for: Individuals who prioritize predictability and guarantees over flexibility.
Joint Last-to-Die Universal Life
This policy offers more flexibility but with fewer guarantees. Key features include:
- Flexible Premiums: You can often adjust your premium payments within certain limits. You can pay a minimum premium to cover the cost of insurance or a higher premium to build cash value more quickly.
- Investment Component: The cash value is invested in accounts linked to market indexes or GIC-like options. This offers the potential for higher growth but also carries market risk.
- Adjustable Death Benefit: You may be able to increase or decrease the death benefit as your needs change (subject to medical underwriting).
Best for: Individuals who are comfortable with managing investment risk and want more control over their policy’s funding and growth.
Key Benefits of Joint Last-to-Die Life Insurance
There are several important advantages unique to joint last-to-die life insurance policies:
Substantially Lower Premiums
Insuring two lives on one joint policy is substantially cheaper than purchasing separate permanent life insurance policies for each individual.
The premium savings are significant, especially for older couples. This cost efficiency stems from the insurer only having to pay one death benefit after both insureds pass away.
Coverage Equal to Combined Estate Value
The death benefit on a joint last-to-die policy can be set to the estimated future value of the couple’s combined estate. This ensures there will be sufficient tax-free funds to cover the estate’s needs.
Without this level of coverage, there is a risk of forced sales of assets or other unwanted liquidations to pay estate costs. With joint last-to-die insurance, the full value of the estate can be preserved.
Pay Until First Death Premium Option
Some insurers offer joint last-to-die policies with premiums only payable until the first death. After one spouse passes away, no further premiums are owed.
This can eliminate a significant expense in retirement when income declines. The coverage continues unchanged after premiums cease.
Balancing Inheritances Between Families
The tax-free death benefit payout from a joint last-to-die policy can be used to help balance inheritances between children from previous relationships.
Without the equalization provided by the insurance proceeds, there is often an uneven distribution. This can cause family conflicts.
Avoiding Probate and Estate Fees
By naming beneficiaries directly on the life insurance contract, the tax-free death benefit can pass outside of probate. This avoids administrative probate fees charged in most provinces.
Without this probate bypass, a percentage of the estate’s value is lost to fees before being distributed to heirs. Life insurance death benefits aren’t subject to these deductions.
Who Needs Joint Last-to-Die Life Insurance in Canada
Based on its unique benefits and costs, joint last-to-die life insurance is often best suited to the needs of:
Older Couples (60+)
Older couples tend to have the largest estates that can benefit from joint life insurance. As seniors age, traditional life insurance also becomes more expensive or even unavailable. Joint last-to-die insurance policies remain affordable into advanced ages due to lower ongoing premiums.
Couples with Appreciating Assets
If a couple has assets expected to increase substantially in value over the coming years, like real estate or a business, then joint last-to-die insurance can be keyed to this future value. The death benefit can grow in line with the estate’s increasing value.
Those Wanting to Leave Large Bequests
For couples looking to leave an inheritance or sizeable charitable donation, a joint last-to-die policy can provide these funds tax-free upon the death of the second spouse. This enables the estate to fulfill bequest wishes that might not otherwise be possible.
Blended Families Needing Estate Equalization
When a couple has children from previous relationships, a joint last-to-die policy creates a source of proceeds that can balance inheritances between all beneficiaries. This helps prevent conflicts over uneven distributions.
What Does Joint Last-to-Die Life Insurance Cost in Canada?
The cost of joint last-to-die life insurance depends on several factors:
- Ages of the insureds
- Health status of the insured
- Amount of death benefit
- Type of permanent policy
- Insurance company
In general, joint last-to-die coverage will be less expensive than individual permanent life insurance policies on each person.
Here are some sample prices from leading Canadian insurer Canada Life:
Joint Last-to-Die Life Insurance Pricing for $500,000 Death Benefit
| Ages | Monthly Premium |
| 50-year-old couple | $368 |
| 60-year-old couple | $583 |
| 70-year-old couple | $999 |
| 80-year-old couple | $1,932 |
Joint Last-to-Die life insurance With Premiums to the First Death
| Ages | Monthly Premium |
| 50-year-old couple | $388 |
| 60-year-old couple | $734 |
| 70-year-old couple | $1,434 |
| 80-year-old couple | $3,418 |
As you can see, premiums rise as insureds age. Paying premiums only until the first death costs more upfront. We recommend getting quotes from multiple insurers before deciding, as premiums can vary widely.
What to Consider When Getting a Joint Last-to-Die Policy
When evaluating joint last-to-die life insurance, there are several important factors couples should carefully consider:
Age and Health
Insurance becomes more expensive as insureds age and develop health issues. A joint last-to-die policy works best when both spouses are still relatively young and healthy, such as in their 50s or 60s. Trying to purchase this coverage too late limits options.
Size of Estate
The death benefit needs to be aligned with the current value of the estate plus expected future growth. Sufficient coverage is key, as the policy can’t easily be increased later if the estate value grows faster than anticipated.
Tax Exposure
Taxes owing on capital gains, investments, and registered accounts upon the last death need to be estimated. The ideal death benefit amount will fully cover taxes owed.
Estate Equalization
For blended families, determine if inheritances will be unbalanced upon the last death. A joint policy can create a pool of money for equalization.
Premium Affordability
Joint last-to-die premiums are lower than individual policies but still represent a long-term expense. Make sure premiums align with retirement income and savings.
Working with an experienced insurance advisor is crucial for navigating these factors and developing the ideal joint last-to-die life insurance solution.
Finding the Most Suitable Joint Last-to-Die Life Insurance Policy
The key to finding the best joint last-to-die life insurance policy is shopping around and comparing options from multiple insurers. Here are some tips:
- Compare quotes for the same coverage amount from at least three insurers before deciding. Premiums can vary significantly.
- Consider adding a small joint first-to-die life insurance rider to cover immediate expenses, like funeral costs, at the first death.
- To eliminate this future expense, look for a joint policy with premiums payable only until the first death.
- Select an appropriate death benefit amount that aligns with the final estate value after the last death.
- Run quotes at different coverage levels to optimize the amount relative to premium costs.
- Only purchase from insurers with strong financial ratings from third parties like A.M. Best. Avoid unknown companies.
- Find an independent life insurance broker who can access multiple insurers and explain the pros and cons of each.
- Have your advisor walk you through policy illustrations showing guaranteed and projected values over time.
Investing the time upfront to understand different joint products, pricing, and carriers is essential to identifying the best solution and avoiding future issues.
Where Can You Buy Joint Last-to-Die Life Insurance in Canada?
Joint last-to-die life insurance is available from many of the top life insurance companies in Canada:
Sun Life Financial
As one of the largest insurance providers in Canada, Sun Life offers both participating whole life and universal life joint last-to-die policies. Their participating whole-life options come with dividends that can reduce costs over time.
Canada Life
Canada Life, also a major player, offers a joint last-to-die universal life insurance product called EasyCare UL. It provides lifetime coverage along with an optional rider to lock in insurability for future changes.
RBC Insurance
RBC Insurance provides joint last-to-die coverage through its Royal Estate Maximizer universal life insurance product. Low 6-figure death benefit amounts are available without a medical exam.
Empire Life
Empire Life‘s Impress universal life insurance can be structured for joint last-to-die coverage. It offers guaranteed cash values and dividends along with an optional return of premium rider.
Equitable Life
Equitable Life offers both participating whole life insurance and universal life insurance that can provide joint last-to-die coverage. They focus on being cost-competitive.
Industrial Alliance
Industrial Alliance features both forever universal life and permanent life joint products. Their permanent policies come with dividends and reduced paid-up options.
In addition, many other insurers like Manulife, BMO Insurance, and Foresters offer joint last-to-die insurance options. Pricing and features can vary greatly, so working with an independent broker is highly recommended.
Potential Drawbacks of the Joint Last-to-die Life Insurance
While joint last-to-die life insurance has many benefits for estate planning, there are some potential drawbacks couples should be aware of:
- No death benefit is paid when the first spouse passes away, leaving no immediate funds to cover expenses like funeral costs or taxes. Adding a small first-to-die term rider can help fill this gap.
- Potential premium increases universal life: With some Universal Life policies, if the underlying investments underperform or the internal cost of insurance rises more than projected, you may need to increase your premiums later to keep the policy from lapsing. This risk is not present with guaranteed Whole Life policies.
- Complexity in case of divorce: A JLTD policy complicates a separation. The policy cannot simply continue as is. It typically must be surrendered for its cash value, or the insurer may allow it to be split into two smaller individual policies, which can be a complex and costly process.
- Underestimating estate growth: If your assets grow more than anticipated, the death benefit you purchased years ago may be insufficient to cover the final tax bill. It’s important to review the coverage periodically.
- Availability limitations: There are maximum age cut-offs for applying for permanent life insurance coverage, typically around age 80. This restricts late-in-life joint policy purchases.
While disadvantages like these should be factored in, they can often be mitigated with proper structuring of the joint last-to-die policy and guidance from an advisor.
Alternatives to Joint Last-to-die Life Insurance
While joint last-to-die insurance has unique benefits, couples should also consider alternative life insurance solutions:
Individual Permanent Policies
Rather than joint insurance, each spouse could purchase their own permanent life policy. This provides a living benefit if one spouse dies first. However, premiums for the two policies are higher.
First-to-Die Insurance
Joint First-to-die life insurance provides a death benefit at the first death. This can fund needs like taxes immediately, rather than waiting until both spouses pass away.
Term Life Insurance
For younger couples, low-cost term life insurance provides more affordable coverage for a set period of time, such as 20 years. More expensive permanent insurance can be added later.
These alternatives have trade-offs compared to joint last-to-die insurance. Speaking with an experienced advisor can help identify the optimal strategies.
The Bottom Line
In summary, joint last-to-die life insurance in Canada can provide valuable benefits as part of an estate plan for couples who:
- Have estate liquidity needs for taxes, fees, and debts
- Want to maximize inheritance amounts for beneficiaries
- Need to balance distributions across blended families
- Are charitably inclined with donation goals
- Are concerned about rising individual life insurance costs later in retirement
The cost efficiencies and flexibility of survivorship insurance are difficult to replicate with other solutions. By shopping policies from leading insurers and working with licensed advisors to customize coverage, couples can implement this useful planning tool.
Joint last-to-die life insurance allows couples to rest assured, knowing their estate will ultimately be distributed to heirs and causes exactly as they wish, with no surprises.
FAQs on Joint Last-to-die Insurance
What is the difference between joint last-to-die and regular life insurance in Canada?
It works by insuring two people under a single permanent policy. The death benefit is not paid out until after both people have passed away. Premiums are paid until the death of the last surviving insured.
When should you consider joint last-to-die insurance in Canada?
It makes sense for older couples with larger, appreciated estates who need liquidity for final expenses and taxes. It may not be as useful for younger couples.
What happens when the first insured dies with a joint last-to-die insurance policy?
A joint last-to-die policy pays the main death benefit on the second (last) death. Some contracts may also offer an optional early death benefit on the first death that’s tied to the policy’s accumulation value. Verify it in the policy illustration.
How can joint last-to-die insurance help with estate taxes in Canada?
The tax-free death benefit from a joint last-to-die policy can provide funds to pay capital gains taxes owing at the last death, helping minimize taxes and maximize inheritances.
Does joint last-to-die life insurance bypass probate in Canada?
Yes, joint last-to-die policies allow you to name beneficiaries who will receive the death benefit directly, avoiding the estate passing through probate and avoiding probate fees.
Can you convert a regular life insurance policy to a joint last-to-die in Canada?
Depending on the terms and conditions of your specific contract, you can convert an existing permanent individual life insurance policy to a joint last-to-die insurance policy. Check with your insurer.
What happens to a joint last-to-die life insurance policy if the couple divorces in Canada?
The policy would likely have to be terminated and converted to two individual policies, as insurable interest typically no longer applies after divorce. Check your policy terms.
Can each spouse name their beneficiaries for a joint last-to-die policy in Canada?
Yes, each insured person can usually name separate beneficiaries for their portion of the death benefit payout.
Can you borrow against the cash value of a joint last-to-die life insurance policy in Canada?
Joint last-to-die policies do not have cash values, allowing policy loans. The only payout occurs upon the death of the last insured.
Can existing health conditions be covered under joint last-to-die policies?
Yes, but coverage for pre-existing conditions is usually more expensive if available. Certain conditions may also preclude eligibility.
Can you get a joint last-to-die life insurance policy if one spouse is uninsured?
Both spouses must undergo the underwriting process and be approved for coverage to issue a joint policy.
