Are you and your partner among the millions of Canadians worried about your family’s financial future? A recent report from LIRMA found that nearly a third of Canadian adults believe they have a life insurance coverage gap. Joint life insurance is often considered an effective and affordable solution for couples seeking shared coverage. While these polices tend to be cheaper than two individual plans, their structure is more complex and carries certain risks that every Canadian should understand before purchasing.
What is Joint Life Insurance?
Joint life insurance is a single policy that covers two people, typically a married couple, common-law partners, or even business partners. This payout can help the surviving partner or beneficiaries manage final expenses, cover debts, replace lost income, and more.
Joint life insurance (first-to-die) often costs less than buying two individual policies. However, joint life insurance limits flexibility – both people are insured for the exact amounts under the same terms.
Types of Joint Life Insurance Policies in Canada
In Canada, most joint policies are set up to pay the death benefit either on the first death (joint first-to-die) or on the second death (joint last-to-die). Separately, the policy itself may be term or permanent, depending on the insurer and product.
First-to-Die Life Insurance
A joint-first-to-die policy pays out the death benefit upon the death of the first of the two insured individuals. After the payout, the policy terminates.
Typical uses for first-to-die policies
- Income Replacement: If a household relies on both incomes, the death benefit can replace the deceased partner’s lost income, helping the survivor maintain their standard of living.
- Debt Repayment: Commonly used to pay off a mortgage or other significant shared debts.
- Final Expenses: Provides ready cash to cover expensive end-of-life expenses (funeral services, estate administration fees, etc.)
- Business Buy-Sell Agreements: Business partners can use this policy to fund an agreement where the surviving partner uses the death benefit to buy out the deceased partner’s share of the business from their estate.
First-to-die insurance provides immediate financial support to the surviving partner. It’s useful when both incomes are similar or when paying off shared debts is the primary goal.
Last-To-Die Life Insurance
Last-to-die life insurance policies pay out a death benefit only after both partners pass away. The surviving partner keeps paying premiums after the first death.
Typical uses for last-to-die policies
- Estate Planning & Legacy Creation: The primary use is to leave a significant inheritance for children or other beneficiaries. For high-net-worth individuals, the death benefit can provide liquidity to cover estate settlement costs, thereby preserving the estate’s value for heirs.
- Charitable Giving: Couples can name a charity as the beneficiary, leaving a substantial planned gift.
Last-to-die insurance is ideal for legacy planning because the payout occurs upon the second death. The surviving partner gets no money on the first death.
What are the Pros and Cons of Joint Life Insurance?
Joint life insurance is right for some couples but not others. Assess your need carefully by considering both the advantages and disadvantages below:
| Pros (The Advantages) | Cons (The Disadvantages) |
|---|---|
| Cost Savings – A joint policy is more affordable than two separate individual policies because the insurer’s risk is calculated on a joint basis. | Only One Payout – For first-to-die policies, there is only one death benefit. The survivor receives the payout but is then left without life insurance. |
| Simplified Application – Two people typically complete one joint application. | Lack of Flexibility – Both partners are covered for the same amount under the same terms. Cannot customize coverage for individual needs. |
| Complications in a Divorce – While some insurers offer a split option, some do not. This may force the policy to be cancelled or require one person to take it over. |
Important Policy Feature: The Split Option
One of the biggest drawbacks of joint insurance is the difficulty of managing it after a divorce or separation. Some Canadian insurers may offer a split option or a separation rider on their joint policies. This feature allows the couple to split the joint policy into two separate individual policies without providing new medical evidence of insurability.
This feature is policy-specific and usually only available within a specific timeframe after the legal separation or divorce. When shopping for a joint policy, ask your advisor if this feature is included.
Individual vs. Joint Life Insurance Policies: Which is Better?
Here is a comparison of individual policies to joint life insurance:
| Factor | Individual Life Insurance | Joint Life Insurance |
|---|---|---|
| Cost | Generally more expensive than a single joint policy. | Often cheaper for the same total coverage amount. |
| Flexibility | High. Each partner can choose their own coverage amount, term length, and beneficiaries. | Low. Both partners are locked into the same terms and coverage amount. |
| Payouts | Two separate policies mean two potential death benefits. If one partner dies, the other’s policy remains active. | One death benefit in total. A first-to-die policy terminates after the first death. |
| Separation/Divorce | Simple. Each person keeps their own policy with no complications. | Can be very complicated. |
Overall, individual policies are best for couples with different coverage needs, significant age/income gaps, or who prioritize flexibility. Joint-life polices are suitable for couples with similar needs and a tight budget, or for specific estate planning goals (last-to-die).
For most Canadian couples, the superior flexibility of two separate individual policies often outweighs the modest cost savings of a joint policy. To determine if joint coverage is the right approach, analyze your income, debts, dependents, and future goals.
Where to Buy Joint Life Insurance in Canada
Many top insurance companies offer joint life insurance policies in Canada:
| Provider | Joint life insurance offerings |
|---|---|
| Sun Life | Has both joint first-to-die and joint last-to-die products. Also provides combined policies with individual pricing discounts. |
| Manulife | Has affordable rates but fewer built-in policy benefits. |
| RBC Insurance | Allows customization through optional benefits and riders. Quick underwriting process and highly rated customer support. |
| Canada Life | Features a Child Term Rider to add coverage for kids. Includes a separation option to divide joint policies after divorce. |
When buying joint coverage, remember to compare costs across insurers to find the best rate. Using a Life insurance broker can help navigate options.
How Much Does Joint Life Insurance Cost for Canadians?
The premium for joint life insurance depends on the following:
- The ages of both applicants
- Gender
- Health and lifestyle factors
- Amount of Coverage
- Term length
On average, joint coverage is more affordable compared to two separate policies. However, a joint policy still depends on the insurer’s underwriting of both insured people. One partner’s medical history can increase premiums or affect approval.
Exact premiums must be quoted individually. Term policies lasting 10-30 years have lower premiums than permanent insurance. Costs rise with age, so locking in rates early provides savings.
What are Some Alternatives to Joint Life Insurance?
As joint policies have significant drawbacks, consider the following alternatives:
Individual Life Insurance: The most flexible option. Many couples find that two separate policies offer the best protection, despite the potentially higher cost.
Group Life Insurance: Check if your employer’s benefits plan offers spousal coverage. This can be convenient, but coverage is often limited and usually not portable if you leave your job.
Spousal Rider: This is an add-on to an individual policy that provides a smaller amount of coverage for a spouse. It’s less comprehensive but can be a very low-cost way to add some protection.
Combined Policies: Some insurers offer a small discount if both partners buy individual policies from them at the same time. This provides the flexibility of individual plans with a minor cost saving.
Evaluating alternatives helps ensure you make the optimal insurance choices. A combination of different policies may be the best approach.
The Bottom Line
Joint life insurance can be an excellent tool for the right situation, particularly for budget-conscious couples with a clear, shared need like covering a mortgage (First-to-Die) or for complex estate planning (Last-to-Die). Before making a decision, compare quotes for both joint and individual policies and speak with a licensed, independent insurance advisor who can analyze your specific needs.
FAQs on Joint Life Insurance
How much joint life insurance do we need?
Estimate your total costs related to income replacement, debts, final expenses and emergency savings. An insurance advisor can provide a needs analysis.
Can we separate a joint policy if we get divorced?
It depends on the policy. If your policy includes a split option, you can convert it into two individual policies without a new medical exam. If not, your options are limited and may involve cancelling the policy.
Is joint life insurance really cheaper?
Yes, it is generally more affordable than buying two identical individual policies because the administrative costs are lower for the insurer, and the risk is calculated jointly. However, the savings may not be significant enough to justify the loss of flexibility.
Can same-sex couples get joint life insurance coverage in Canada?
Yes. Insurers in Canada offer the same joint life insurance products to all married and common-law couples, regardless of sexual orientation.
How does the application process for joint life insurance work?
Both partners complete their personal and medical information as part of a single, joint application. The insurer’s underwriting department then assesses the combined risk of both individuals to determine eligibility and set the premium. This may involve medical exams for one or both partners.
