How joint life insurance can help protect your family or business

When your life and finances are intermingled with a partner—whether that's a significant other or a business associate—it's especially important to consider what would unfold for the people you care about if something were to happen to one or both of you. Joint life insurance is an option that can help protect you or your partner and others who depend on you. With it, one premium covers two people, and it can be set up to pay out a single benefit after either the first or second insured's death.

Many factors can influence whether this is the right insurance for you. In some situations, individual contracts for each person may be a better fit. Here are some key things to consider about joint life insurance for married couples or business partners.

A joint life contract covers two people with a single contract. The most common type of joint life contract is called a "second to die" or "survivorship" contract because it pays out after both people have passed away.

Joint or survivorship life insurance can be a term contract or a permanent contract (whole life or universal life), but it's usually sold as a permanent contract. A permanent life insurance contract can make more sense when the risk you're insuring against is not temporary. Partners who seek the type of death benefit provided by a joint life contract often want protection that lasts a lifetime and doesn't expire after a certain number of years.

Married couples looking for tax-efficient ways to transfer wealth to the next generation might find value in this type of insurance. It can also be a helpful tool for deciding business succession when you're involved in a partnership.

Life insurance can help with your estate management when you purchase a permanent contract. A permanent contract does not expire as long as your premium payments are current and pays a death benefit when the triggering event occurs. For a joint life contract, the triggering event would be the death of the second insured.

Joint life may be a good choice when purchasing individual contracts for each person isn't as affordable for the amount of coverage you desire or when the couple only needs to provide a death benefit under limited circumstances that make a joint contract a better value.

For example, assets generally pass from a deceased spouse to the surviving spouse free of estate tax under the unlimited marital deduction, but having a joint second-to-die life insurance contract can help ensure that when the second spouse dies, a death benefit is available to cover estate taxes, debts and final expenses. This benefit can help preserve the couple's wealth for their heirs, whether they're children, charitable organizations or other beneficiaries.

Your estate may owe taxes if your total taxable assets are larger than the lifetime exclusion in the year you die.¹ The basic exclusion amount in 2022 is $12.06 million per person ($24.12 million for married couples) and will be adjusted for inflation annually through 2025. In 2026, the exemption is scheduled to reduce by about half under current law. However, the death benefit from any life insurance contract (not just a joint life contract) is usually income tax-free for beneficiaries. Death benefit proceeds may be excluded in the contract owner's taxable estate with proper planning.

A permanent life insurance contract can also help couples leave an equal inheritance for each of their children without having to sell shares in a family business or liquidate assets with sentimental value, such as the family home. In addition, it can provide for a disabled person or another dependent who needs a caregiver and a source of financial support when both of their parents or guardians are gone.

A joint life contract isn't just for married couples or life partners; it can also be a good choice for business partners who want to plan for succession.

Suppose two business partners purchase a joint life contract and name each other as the beneficiaries. When the second partner dies, the contract would pay a death benefit to the second partner's named beneficiaries, who could then use it to cover the company's operating costs until they decide what to do with the business.

The unique benefits of a joint life contract can make it the perfect product in some circumstances, but in other cases, individual life insurance may be a better fit. Here are three examples:

• Each person has children from a previous relationship. Spouses or life partners in this scenario sometimes choose to carry individual contracts that allocate the death benefit between their surviving spouse or partner and their own children.

• Each person has a different target retirement date. Whether it's a business relationship or a romantic one, individual term contracts may be more appropriate if, say, one person is seeking coverage for 10 years while the other wants coverage for 20 years.

• Each person needs a different death benefit. If one spouse or business partner has significantly more assets, obligations or heirs than the other, separate contracts may be the most cost-effective way to provide personalized coverage.

Whether you're considering individual or joint contracts, a life insurance calculator can help you estimate how much coverage you may need.

• It may help you save money on premiums. Insuring two people with one contract and a single death benefit may be less expensive than each person purchasing their own contract and having their own death benefit, depending on each person's age and health.

• It may be the best way for an older or less healthy partner to get life insurance. The pooled risk from insuring two people under one contract may allow the insurance carrier to approve the couple together even if one couldn't qualify (or couldn't afford their desired death benefit) alone. Alternatively, you may be able to purchase a spousal rider on the healthier partner's individual contract or a rider that pays out when the first spouse dies on a second-to-die joint contract.

• It can accumulate cash value. With a permanent joint life contract, such as survivor whole life, a portion of your premiums goes toward a savings component called cash value that may grow tax-deferred. You may be able to borrow against your cash value,² use it to purchase additional insurance or use it to pay contract premiums, among other possibilities. Permanent life insurance contracts from mutual or fraternal insurance companies may also pay contract holder dividends.

• It may leave one spouse or partner's beneficiaries without coverage. Before purchasing a contract, find out what would happen if your relationship ended. Some joint contracts can be split into two individual contracts, but in other cases, each person might need to apply for new coverage.

• It may not be right for young people. A second-to-die joint life contract does not pay a death benefit until the second insured dies. If not getting an insurance payout after the first person's death would cause a financial hardship for the surviving contract holder, two individual life contracts may be a better choice.

• It may be more expensive than separate contracts. You'll want to compare quotes for insuring each person separately and both individuals together before assuming anything about price. Premiums depend on the insurer you choose and your specific needs and circumstances.

Does a joint life contract sound right for your needs, or would another option be a better fit? Either way, a financial advisor can help answer your questions about life insurance and provide insight into the flexibility and protection it could provide for your partner and your loved ones. Connect with a local financial advisor today to discuss your needs.