First-to-die insurance

A first-to-die life insurance policy can make sure your partner or spouse can maintain their lifestyle if you die and they can no longer count on your income.

But it only pays out once, so it might not be enough for your children if you’re both gone.

What is first-to-die insurance?

A first-to-die life insurance policy insures two people and pays out when the first one dies. For example, if two spouses get a first-to-die policy and one of them passes away, the living spouse would get the death benefit money. The policy would then be over, and the living spouse would no longer be insured.

How is it different than single life insurance?

Single life insurance policies cover one person, so for you to both be insured you’d need to take out two policies — which is generally more expensive. But if one of you is sick or significantly older than the other, a joint policy could end up costing the same or more.

Having two single insurance policies also means you’re both insured, and if you both die, more money will be left to your beneficiaries.

For example, if you take out a $50,000 first-to-die policy that covers you and a spouse, and you both die in a car crash, any contingent beneficiaries — like your children — will receive $50,000. That might not be enough to cover the loss of both incomes. With two single policies, they’d get $100,000.

How much first-to-die insurance do I need?

To figure out how much insurance you’ll need, factor in:

• Your income. Do both partners work? Do you rely on one income more than the other? Look at your lifestyle and what you would need to maintain it if one of you couldn’t work.
• Debts. Perhaps you have a mortgage or personal loans to pay off. Factor in any debt or financial commitment that could leave your family burdened.
• Your partner and children. If your partner is a stay-at-home parent with children who are still attending school, it’s likely they would have to get a job and pay for child card following your death. The cost of keeping the house and raising children adds up quickly when you factor in childcare and housekeeping.
• Your budget. How much can you afford to pay for premiums each month? While it’s ideal to take out a policy that can cover your full income along with child care and other expenses, that’s not always possible. Instead, aim for as close as you can get to that number while staying comfortably within budget.

Things to consider when choosing a first-to-die insurance

When choosing a life insurance policy, compare:

• Policy features. Read through the full policy to find out how it works and what riders or extra features are available.
• Exclusions. Perhaps you are an extreme sports lover or have a pre-existing medical condition. Whatever the case, it’s important that you’re aware of your policy’s exclusions so you’re covered. Avoid the frustration of paying for a life insurance plan and finding that you’re not covered when you really need it. Speak to an adviser and read the fine print before committing.
• Eligibility. Some policies have eligibility requirements based on your age, health or residential status. Generally, first-to-die insurances will be available to residents who are between the ages of 17 and 69, with renewal options until a person reaches an older age.
• Renewals. Does your first-to-die insurance offer the option of renewals? Are there any requirements that you have to meet to be able to renew your first-to-die insurance policy, such as a minimum time period commitment?
• Children. Some first-to-die insurance policies will offer the option of adding on your child to your policy for added peace of mind. This may be a convenient way to protect your whole family.

Who needs joint life insurance?

Most joint life insurance policies are sold to married couples with a family. Though policies can also be for couples who have built a life together or business partners. If you have a relationship with someone that involves financial codependence, a life insurance policy may be in your best interest.

It’s always best to shop for joint life insurance plans when you are young and healthy. Applying while you aren’t suffering from health issues, or getting on in age will likely give you more options and more affordable prices.

Other life insurance options

A first-to-die policy isn’t the right option for everyone. You may also want to consider:

• Second-to-die life insurance. This is also a joint policy, but it pays out when the second person dies. This type of policy is used most often to protect children after both parents pass away, and is a good option if you and your spouse don’t rely on one another’s incomes.
• Single life insurance. If you and your spouse rely on each other’s incomes and you have children you’d want to leave a significant amount of money to if you both died, you may want to consider taking out two separate life insurance policies.
• Guaranteed-issue life insurance. If either you or your spouse has major medical issues, a guaranteed-issue life insurance policy can offer coverage with no medical underwriting. These policies have lower coverage limits and are best for people who don’t qualify for traditional life insurance.

Bottom line

No one expects to get sick, seriously injured or pass away suddenly, but the reality is that it can happen to any of us at any time. While the uncertainties of life shouldn’t slow us down, it’s best to be prepared for all situations. Finding the right life insurance policy can alleviate stress and financial hardships so your family will always be taken care of.

Frequently asked questions

• Can I get a joint life insurance policy with someone I'm not married to?

  Yes, if you both have an insurable interest in one another. For example, if you and a business partner are financially reliant on each other, you could take out a joint policy.

• What happens to a joint life insurance policy if we die at the same time?

  If you named contingent beneficiaries, the payout will go to them. If you didn’t, the insurer will try to determine who died first, even by a few minutes, and the death benefit will go to their estate.

• Can I cancel a joint life insurance policy if we're getting divorced?

  Probably not. Many states have laws restricting your ability to cancel a life insurance policy during divorce proceedings. The policy will generally be included in the assets split up during the divorce, and the court will give you guidelines and if and when you’re able to cancel it.