Ben Nguyen 
Joint last-to-die life insurance, or survivorship insurance, provides lifetime coverage for both partners by paying out a tax-free death benefit lump sum when the second spouse passes away.
Joint last-to-die life insurance, a unique form of permanent life insurance , serves as a powerful estate planning tool for Canadian couples. It helps protect their assets and enables them to leave a significant financial legacy.
This comprehensive guide will explore everything you need about joint last-to-die life insurance, including critical data points, examples, and expert insights to help Canadian couples make informed decisions.
What is Joint Last-to-Die Life Insurance?
Joint last-to-die life insurance covers two people on a single permanent life insurance policy and pays out the death benefit when the last surviving policyholder passes away.
Unlike traditional life insurance in Canada, no death benefit is paid after the first death.
The primary uses of this type of Joint Last-to-Die Life Insurance policy in Canada 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 25-40% lower compared to two separate permanent life insurance policies. This cost efficiency makes joint last-to-die insurance an attractive option.
Joint last-to-die life insurance policies can be structured as whole life insurance, universal life insurance, or participating life insurance. Permanent coverage lasts for the lifetime of the insureds. The death benefit and cash value grow over time.
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.
Take a look at this premium comparison from leading Canadian insurer Canada Life:
Ages Joint Last-to-Die life insurance 2 Individual Policies Premium Savings
| Ages | Joint Last-to-Die 2 | Individual Policies | Premium Savings |
|---|---|---|---|
| 65-year-old couple | $801/month | $1,336/month | 40% savings |
| 75-year-old couple | $1,434/month | $2,868/month | 50% savings |
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.
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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.
Read more : Life Insurance for Seniors Over 60 in Canada
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.
Read more : Life insurance for kids in Canada
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 25-40% 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 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.
An independent broker can source the most competitively priced joint last-to-die policy for your specific situation.
The remainder of the article covers the key considerations, benefits, and alternatives to weigh for joint last-to-die life insurance in Canada.
How Does Joint Last-to-Die Life Insurance Work in Canada ?
It is important to understand the mechanics of how a joint last-to-die life insurance policy functions:
- The policy insures two individuals (usually spouses) under a single contract
- Permanent life insurance coverage lasts for the lifetime of both insureds
- Premiums are paid annually or monthly until the death of the last insured
- Some policies offer an optional rider to cease premiums at the first death
- The death benefit lump sum is paid to named beneficiaries when the last spouse dies
- Proceeds pass tax-free directly to beneficiaries outside of probate
- There is no cash value accumulation and no withdrawals available
- The lack of cash value makes joint last-to-die insurance a pure insurance product for estate planning.
Optional riders can provide benefits like waiver of premium, inflation protection, and guaranteed insurability.
Make sure to consult with a licensed advisor to structure the policy appropriately for your situation. An independent broker can access policies from multiple insurers to find you the best fit.
What Should You Consider When Getting a Joint Last-to-Die Life Insurance 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 identify the best solution and avoid 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.
Read the full review: Sun Life Insurance Canada
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.
Read the full review: Canada Life Insurance
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.
Read the full review: RBC Life Insurance
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.
Read the full reivew: Empire Life Insurance
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 Payout Until the Second Death
Unlike first-to-die life insurance policies, there is no death benefit paid when the first spouse passes away. This means no immediate funds to cover expenses like funeral costs or taxes. Adding a small first-to-die term rider can help fill this gap.
Premium Increases
Insurers reserve the right to increase premiums on permanent life insurance policies to reflect increasing policy costs as insureds age. These increases could make maintaining joint last-to-die life insurance coverage difficult if they substantially exceed income growth.
Policy Changes
The surviving spouse or heirs could potentially make unwanted changes to the joint policy after the first death, such as lowering the death benefit. Having premiums cease at the first death can prevent this.
Estate Value Misestimation
If the death benefit is underestimated compared to the eventual size of the estate when the last spouse dies, there may be insufficient tax-free funds available to cover final costs and taxes.
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.
Guaranteed Universal Life
GUL insurance offers permanent coverage with guaranteed level premiums for life. This avoids unexpected premium hikes that come with traditional permanent policies.
These alternatives have trade-offs compared to joint last-to-die insurance. Speaking with an experienced advisor can help identify the optimal strategies.
Conclusion
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.
Next Steps
For an initial assessment of your specific needs and joint policy options, consult with one of our licensed advisors specializing in estate planning.
We will provide unbiased guidance tailored to your unique situation.
FAQs
What is Joint Last-to-Die Life Insurance in Canada ?
Joint last-to-die life insurance in Canada is a permanent policy that covers two people and provides a death benefit lump sum payout when the second insured person passes away. It is a common estate planning strategy used by couples in Canada.
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.
What are the benefits of joint last-to-die insurance in Canada?
Benefits include lower premiums compared to individual permanent policies, providing funds equal to the total estate value, and avoiding probate fees.
Who can apply for a joint last-to-die policy in Canada?
It is available to couples such as married spouses or common-law partners. Business partners can also apply. Both people must be under age 80-85 in most cases.
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.
Where can you buy a joint last-to-die policy in Canada?
Leading insurance companies like Sun Life, Canada Life, RBC, and Empire Life offer joint last-to-die coverage. An independent broker agency like IDC Insurance Direct Canada inc can help you find options.
Why would a joint last-to-die policy be recommended in Canada?
It can be recommended for tax planning purposes and to provide a legacy. The cost savings compared to individual permanent policies also makes it attractive.
How much does joint last-to-die life insurance cost in Canada?
The cost depends on factors like the ages of the insureds, the death benefit amount, and the insurance company. Expect premiums 25-40% lower than buying individual policies.
Can you change the death benefit amount or beneficiaries on a joint policy?
The death benefit and beneficiaries can usually be changed. However, any changes typically require approval from both people insured on the policy.
What happens when the first insured dies with a joint last-to-die insurance policy?
Nothing is paid out upon the first death. The surviving policyholder continues the policy, either by continuing premiums or if the paid-up option was selected.
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.
Is joint last-to-die insurance renewable after the term expires in Canada?
Joint last-to-die is a form of permanent life insurance that provides lifetime coverage. There is no term expiration to renew, and coverage continues until the last insured dies.
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.
Are premiums for joint last-to-die policies guaranteed never to change?
No, the premiums are not guaranteed. Insurers typically reserve the right to increase premiums over time based on factors like rising administrative costs and longer lifespans.
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.
What are the tax implications for a joint last-to-die life insurance Canadian policy if one spouse is a US citizen?
Potential US estate tax issues could arise for the US-citizen spouse. Professional cross-border tax advice should be obtained.
How does joint last-to-die life insurance pricing work from a risk perspective?
The insurer is only obligated to pay one death benefit after both insured lives pass away, so this reduced risk is reflected in lower premiums.
Is medical underwriting required for joint last-to-die insurance policies in Canada?
Full medical underwriting is usually required for both insureds to qualify for coverage and determine pricing.
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.
Do joint last-to-die insurance premiums count as medical expenses for tax purposes in Canada?
No, joint last-to-die insurance policy premiums do not qualify for the medical expense tax credit like some disability or critical illness premiums.
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.
Will joint last-to-die life insurance payout if the couple divorces?
No, a divorce will void the contract due to lack of insurable interest so that no death benefit will be paid in this scenario.
Are premiums deductible as medical expenses for joint last-to-die life insurance policies?
No, joint last-to-die life insurance premiums do not qualify as deductible medical expenses on your tax return.
Will divorce automatically cancel and cash out a joint last-to-die insurance policy?
No, the policy will not automatically cancel or cash out, but owners must take action to handle it appropriately.
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