What Is First-to-Die Life Insurance and Do You Need It?
You and your spouse may rely on both incomes to afford your mortgage, save for retirement or college, or pay other monthly bills. So what would happen financially if one of you passed away prematurely? First-to-die life insurance could provide income replacement or pay off debts to support the surviving spouse.
What Is First-to-Die Life Insurance?
First-to-die life insurance covers two people under a single policy but only pays out benefits when the first insured person dies. It’s less common than individual life insurance but is one option along with joint last-to-die policies.
First-to-die policies insure both you and your partner’s lives in a shared contract. Yet the insurance company only pays the death benefit after the first death of either spouse. Payout typically occurs when the deceased was still within their prime earning years.
Who Might Need First-to-Die Insurance?
Married couples often consider first-to-die insurance when both partners work outside the home. According to experts, the death benefit can replace income or pay significant debts for the surviving spouse.
For example, the payout could help pay off a mortgage or allow a window of time off work to grieve without worrying about bills. The benefit could also fund college savings for children after losing a parent.
In addition to married couples, business partners may use first-to-die insurance. If the first partner dies, the payout can assist the surviving partner with company expenses or acquiring the deceased share of ownership.
How Much Does First-to-Die Insurance Cost?
First-to-die life insurance costs less than buying two separate policies with the same death benefit. That’s because the insurance company only pays one payout despite covering two people. You’ll need to speak with an insurance agent to get quotes.
Savings between a joint policy versus two individuals depend on the carrier. According to experts, savings could range from five percent to over 30 percent compared to individual policies.
The joint equivalent age also impacts your premium. The insurer uses a formula to determine a single age for pricing based on both applicant’s ages and genders. The older the joint equivalent age, the higher the premium.
Weighing Pros and Cons
First-to-die insurance has advantages but also notable drawbacks to consider.
On the positive side, this type of policy includes a double payout clause for simultaneous deaths. So if both insureds died in an accident, beneficiaries would receive two death benefits.
Other perks include conversion to permanent coverage without new medical exams as you age and purchase options for the surviving spouse.
However, joint life insurance lacks flexibility compared to two separate policies. You cannot adjust coverage for each individual or split the contract if you divorce.
Additionally, both applicants must qualify for preferred rates, which lead to significant savings. If one spouse has health issues, you’ll receive standard pricing.
Besides first-to-die, you have alternatives like individual term life policies or joint last-to-die insurance. Compare costs and features when deciding.
Term life is an affordable way to cover each spouse separately. It provides income replacement or debt repayment for 10 to 30 years. Meanwhile, permanent varieties like whole-life policies accumulate cash value but have higher premiums.
A variation, joint last-to-die coverage, also exists which pays when the second spouse passes away. This funds financial needs like estate taxes or funeral fees.
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