When couples sit down to talk about their finances, there is a common question: should they purchase one life insurance policy together or get separate coverage? This guide examines your life insurance options as a couple, compares joint life and separate coverage, explores a powerful hybrid approach, and provides a tool to help you decide what’s right for your family, your finances, and your future.
Why Life Insurance Matters for Couples
Life insurance provides a tax-free lump sum payment (known as the death benefit) to your beneficiaries upon your death. For couples, this provides immediate financial stability during a difficult time. Here’s why it’s so critical:
- Income replacement: If you or your partner were to pass away, life insurance can help the surviving partner cover daily living expenses and maintain their standard of living. This is especially vital for couples with children.
- Covering final expenses: Funeral and end-of-life costs in Canada can be substantial. The death benefit can cover these costs without depleting savings.
- Pay off joint debts: From mortgages to car loans to credit cards, life insurance can help ensure shared debts do not become overwhelming for the surviving partner.
- Funding future goals: The death benefit can secure your family’s future, for example, funding a child’s post-secondary education, providing a down payment on a home for them later in life, or simply ensuring your partner has a comfortable retirement.
- Peace of mind: Knowing your loved ones will be financially secure, even after you’re gone, provides significant comfort.
What Life Insurance Options Are Available for Canadian Couples?
Canadian couples have two primary approaches to purchasing life insurance:
- Separate (or Individual) Policies: Each partner owns their own, independent life insurance policy. You have two separate contracts, two premium payments, and two potential death benefit payouts.
- Joint Policies: Both partners are covered under a single policy. There is one contract, one premium payment, and usually only one death benefit payout.
Two Types of Joint Life Insurance in Canada
Joint life insurance comes in two main forms: Joint First-to-Die (FTD) and Joint Last-to-Die (LTD)
Joint First-to-Die (FTD)
This is the most common type of joint policy. It pays out the death benefit when the FIRST of the two partners passes away. After the payout, the policy terminates, and the surviving partner is left with no coverage under that policy.
Joint Last-to-Die (LTD)
Joint-last-to-die policies, also known as survivorship life insurance, only pay the death benefit after BOTH partners have passed away. The beneficiaries are typically the couple’s children or a trust.
The Differences Between Individual and Joint Policies
Both structures can use either term life insurance (which provides coverage for a specific period, like 20 or 30 years) or permanent life insurance (which lasts your entire life). The core difference is how the policies are structured and when they pay out.
| Feature | Joint Life Insurance | Individual Life Insurance |
|---|---|---|
| Contracts | One policy covering two people | Two independent policies |
| Premiums | One combined premium payment | Two separate premium payments |
| Policy Fees | One annual fee | Two annual fees |
| Death Benefit | Usually pays out only once | Can pay out twice (once for each partner) |
| Flexibility | Lower Difficult to change or split | Higher Policies can be changed independently |
| Customization | Limited; one coverage amount and term | Fully customizable amounts and terms per person |
| Cost | Often slightly cheaper premiums and lower fees | Can be more expensive due to dual fees and policies |
Each setup has its advantages and disadvantages to consider, which will be explained carefully in the following sections.
Individual policies provide more customization but are more expensive. Joint policies are more straightforward and cheaper, but need to be more flexible. Consider both spouses’ insurance needs and budget when deciding.
What Are the Benefits of Choosing Joint Life Insurance?
Joint life insurance policies provide several financial and administrative advantages that make them attractive for many Canadian couples.
Lower Policy Fees
This is the most significant advantage. Instead of paying two separate annual policy fees when purchasing individual policies, you only pay one. In addition, for a joint first-to-die policy, the premium is often slightly less than the cost of two comparable separate policies because the insurer’s risk is limited to a single payout.
Simplified Policy Management
Managing one contract instead of two reduces administrative complexity. Couples track one renewal date, one premium payment schedule, and one set of policy documents. This simplicity can be a welcome relief, especially for a grieving survivor.
Ideal for Specific, Shared Goals
Joint policies are perfectly designed for certain financial objectives. A first-to-die policy is an efficient and purpose-built tool for eliminating shared debts, such as mortgages. The debt is singular, so a single payout makes perfect sense. A last-to-die policy works best for complex estate planning, where the goal is to provide liquidity for taxes after both partners are gone.
Potential Drawbacks
However, there are also some limitations of joint policies to consider. The Single Payout Limitation (for FTD) is the most critical drawback. The policy pays out once and then terminates, which means there is no continued coverage for the survivor after the first partner dies. In case of divorce or separation, most joint life insurance policies cannot be split into two separate policies. This forces both individuals to apply for new, individual coverage and, most likely, face much higher premiums if they have developed any health conditions or could be denied coverage.
In addition, a joint policy lacks flexibility and customization. Couples are locked into a single coverage amount and term length for both people, even if their incomes, ages, and financial responsibilities differ significantly.
Advantages of Separate Life Insurance Policies
While joint policies can be cost-effective, purchasing two individual policies can eliminate all the risks associated with a joint plan.
Two Potential Payouts & Continued Coverage: This is the single biggest advantage. With separate policies, the family can receive two death benefits.
Better for Unequal Health Profiles: If one partner is in excellent health and the other has a medical condition, the joint policy premium will be based on a blend of their health ratings, so the healthy partner pays more than they would on their own. Separate policies allow the healthy partner to secure preferred rates based on their own risk profile.
Fully Customized Coverage: Couples rarely have identical financial needs. Separate policies allow you to tailor coverage amounts and term lengths to each person.
Flexibility Through Life’s Changes: In the event of divorce or separation, each person keeps their own policy.
The Best of Both Worlds: The Hybrid Strategy
You don’t always have to choose one or the other. A sophisticated and increasingly popular approach is to combine joint and separate policies to create a layered, cost-effective plan.
This strategy involves:
- A Joint First-to-Die Policy: Sized to cover a specific, shared debt, most commonly a mortgage.
- Two Smaller, Separate Policies: Sized to provide individual income replacement and ongoing family support.
Example: Kristin and David have a $425,000 mortgage and two kids.
- They buy a $425,000 joint first-to-die policy on a 25-year term to match their mortgage. This is the most cost-effective way to ensure their home is paid off if one of them dies.
- Kristin earns $90,000 and David earns $70,000. They each buy a separate $500,000 term policy to provide income for the surviving family.
How this plays out: If Kristin dies, David receives $425,000 from the joint policy to clear the mortgage and $500,000 from her separate policy to help raise the kids and replace her income. Plus, David’s own $500,000 policy remains in force, protecting the children if something happens to him later. This hybrid approach provides comprehensive protection without the significant drawbacks of a single joint policy.
Making Your Decision: Choose Between Joint and Separate Coverage
So, what’s the right choice for you? Use this framework to guide your conversation.
Choose Separate Policies if:
- There is a significant difference in your incomes.
- You want to ensure the surviving partner has continued coverage after the first death.
- You have children from previous relationships and need to name different beneficiaries.
- One of you has a health condition that would negatively impact the rates on a joint policy.
- You want maximum flexibility in case of future relationship changes.
Consider a Joint First-to-Die Policy if:
- Your primary and only goal is to cover a specific shared debt, like a mortgage.
- You are on a very tight budget, and the cost savings are the deciding factor in getting any coverage at all.
- You have similar incomes and health profiles, and both understand the policy will end after the first death.
Explore the Hybrid Strategy if:
- You have both a large shared debt (mortgage) and dependents who need long-term income support.
- You want the cost-efficiency of a joint policy for your mortgage but the security of separate policies for your family’s future.
- You want the most comprehensive and resilient financial safety net.
How to Find Affordable Rates
Life insurance can be a significant expense, so it pays to take steps to find the most affordable rates. Here are some tips:
- Purchase earlier in life – Premiums are lowest when young and healthy. Rates start rising significantly in your 40s and 50s.
- Compare quotes – Rates can vary dramatically between insurance companies, so shop around. Get quotes from at least five providers.
- Consider group policies – Many employers offer group rates that are typically cheaper than individual policies.
- Look for discounts – Discounts may be offered for healthy lifestyles, home insurance bundles, group affiliations, and auto-pay options.
- Buy term – Term life insurance generally offers the lowest premiums, making it the budget-friendly option.
- Get a medical exam – An exam proving good health can qualify you for cheaper premiums.
- Avoid policies with return-of-premium – This optional add-on increases premiums significantly.
Being proactive by purchasing early and shopping around makes affordable life insurance available to most couples.
When to Buy or Review Your Coverage
While life insurance policies can last for decades, it’s essential for you and your partner to periodically review your coverage and make adjustments as needed every 3-5 years to see if you still adequately meet your needs, given life changes like:
- Having children – Birth or adoption of kids may increase the needed death benefits.
- Buying a home: You’ve taken on a significant shared debt.
- Mortgage changes – Paying off your home loan may reduce the coverage you need.
- Divorce – Separating may require getting individual policies after having a joint policy.
- Changing jobs or getting a raise – Your income has changed, altering the amount needed for replacement.
- Starting a business: To protect your family from business debts and loss of income.
- Health changes – Developing medical conditions could make preferred rates unavailable.
- Children Becoming Independent – Once your kids are financially self-sufficient and your mortgage is paid off, you may be able to reduce your coverage.
Adjusting coverage keeps insurance aligned with evolving needs and life-stage priorities. An advisor can help review details and recommend changes.
Frequently Asked Questions on Life Insurance for Couples
Deciding on life insurance can undoubtedly raise many questions for couples. Here are answers to some of the most common queries:
Should each spouse get their own policy?
In most cases, individual policies provide the most flexibility and customization. However, some couples prefer the simplicity and lower cost of a joint policy. Consider specific needs and finances when deciding.
How much does life insurance cost for a couple?
Costs vary based on age, health, gender, smoking status, and coverage amount. For a healthy, non-smoking 35-year-old in Canada, a $500,000, 20-year term policy might cost between $30-$50 per month.
Can we get coverage if one of us has a pre-existing health condition?
Yes, in many cases. The partner with the health condition will likely pay a higher premium, or the policy may include an exclusion for that specific condition. In some cases, “no-medical” or “simplified issue” policies are available, which ask fewer health questions but come with higher costs and lower coverage limits.
What happens if we get divorced?
If you have individual policies, you simply change the beneficiary on each policy. If you have a joint policy, it can be more complicated and may need to be cancelled or split, depending on the insurer’s rules. This is a key reason why individual policies are often recommended.
The Bottom Line
Choosing life insurance is a foundational step in securing your financial future as a couple. By understanding your needs, weighing the pros and cons of different policy types, and leveraging the unique advantages available in Canada, you can make a decision that provides lasting security and peace of mind.
If you still have questions or want personalized guidance, LifeBuzz’s licensed advisors are here to help. We simplify comparing quotes amongst top insurers and finding the right coverage at the best price.