A Guide to Joint Life Insurance in Canada
Joint life insurance is exactly what you’d expect it to be. It’s one life insurance policy jointly protecting two people, who may be married or business partners, for example. Similar to other forms of life insurance, its job is to either replace income when one person dies or to leave an inheritance to beneficiaries after the last surviving partner dies.
This kind of coverage is popular in Canada because it’s affordable, and the death benefit is tax-free and typically paid out quickly.
Who buys joint life insurance in Canada?
Joint coverage is usually a lower-cost alternative to individual life insurance policies for couples and business partners who would face high premiums (i.e., the amount you pay for an insurance policy) if they applied for coverage as individuals. This is often the case when one person has an existing medical condition or is significantly older than their partner.
Types of joint life insurance
Joint life insurance policies fall into two broad categories called “first-to-die” and “last-to-die.” The decision often comes down to your needs, your current financial situation, cash flow, and whether you buy Term to 100 or whole life coverage. A Serenia Life advisor can help you choose the right option and then personalize it to work with the other parts of your financial and estate plan.
Option 1. Joint first-to-die life insurance
Joint first-to-die coverage protects married and common law couples by paying out a death benefit when the first of the insured parties dies. The beneficiary (i.e., the persons you choose to receive your life insurance payment in the event of your death) is typically the other insured person.
This gives the survivor a lump-sum payment to be used as they see fit. For example, it could be used to pay for funeral expenses, mortgage payments, child-care costs, income replacement, or capital gains taxes triggered by the sale of a rental property or the inheritance of the family cottage.
Option 2. Joint last-to-die life insurance
Joint last-to-die coverage is an option for couples and business partners. It pays the death benefit when the last of the partners dies. In the case of a whole life insurance policy, the beneficiaries also receive the “cash portion” of the plan. This is money that the insurance provider has been setting aside in an investment account, where it grows tax-free and may even earn dividends.
Last-to-die coverage for couples
Couples who choose joint last-to-die insurance are typically thinking about the long-term needs of loved ones they will leave behind. They use the policy as an estate-planning tool that will enable them to leave a large tax-free inheritance to their heirs. It’s a great fit when a beneficiary, like a dependent child, will need a lifetime income stream after the second partner dies.
Last-to-die coverage for business partners
After the death of the owners, a business needs financial stability to ride out the transition to new management. Successors often need money to cover final expenses and any outstanding debts that must be paid by the business or the owner’s estate. A tax-free cash injection buys time to keep operations running while the new owners find their footing and begin to carry on.
Did you know?
Having a formal buy/sell agreement that includes how a life insurance policy will protect lenders and investors may help a business qualify for more favourable financing.
How joint life insurance works in Canada
Applying for joint life insurance as a couple or as business partners is similar to applying for individual coverage, except you will only have to complete one application for both people instead of two separate applications. Here are the key factors that will determine how much you could pay:
| Factor | How this factor affects the cost of whole life insurance |
|---|---|
| Age | Life insurance is more affordable when you’re young and in good health. |
| Health | Healthy individuals pay less than applicants with pre-existing medical conditions or unhealthy lifestyle practices, like smoking. |
| Risk factors | People who work in high-risk occupations or have dangerous hobbies often pay more. Even volunteering in high-risk countries could affect the amount you pay. |
| Sex at birth | Females typically live longer than males so their coverage costs less. |
| Coverage amount | The cost is relative to the amount of coverage you need. The more coverage you need, the more you’re going to pay. |
| Policy type and features | Policies that offer guaranteed payouts, as well as the option of accumulating cash and receiving dividends will always cost more than term life insurance that provides the same amount of coverage. |
| Extra features | Insurance providers typically offer a variety of optional riders (i.e., coverage that gets added on to an insurance policy to provide additional payouts under specific circumstances) to help you customize your coverage at an additional cost. |
The payout process
At Serenia Life, we’re proud of our incredible claims history that includes an approval rate that consistently exceeds 99.9%1. Because we believe that your insurance payout should be the last thing on anyone’s mind during a difficult time.
In most cases, it takes less than three business days2 for our team to make a claims decision, and your beneficiaries are provided with a dedicated phone line that directly connects them with our claims department for anytime updates. They’re also entitled to $1,000 toward bereavement counselling, just one of the many benefits Serenia life members and their loved ones have access to. View a full list of our member benefits.
The pros and cons of joint life insurance
Whether you’re buying life insurance as a couple or as business partners, this quick summary of both products may help you decide which option is right for you.
Joint First to Die
| Pros | Cons |
|---|---|
| Financial security Provides income replacement for the surviving partner, helping to maintain the family’s financial stability. | Only one payout A payout after the first partner passes away means the second partner is no longer covered (unless they have their own individual policy). |
| Simplicity & Convenience Easier to manage one policy instead of two separate ones. Making payments from a single account can make it easier to budget and plan. | Less flexibility Divorcing couples would need to create new policies and any cash values in whole life plans may need to be liquidated. |
| Tax-free growth The cash portion of a permanent life insurance policy grows, tax-free. It can increase significantly over time. | Cost of new coverage The survivor may need to apply for individual life insurance at an older age which will cost more. |
Joint Last to Die
| Pros | Cons |
|---|---|
| Affordability Coverage is usually less expensive than two individual policies. | Delayed single payout A payout after the last surviving partner passes away means no financial relief when the first partner passes. |
| Simplicity & Convenience Easier to manage one policy instead of two separate ones. Making payments from a single account can make it easier to budget and plan. | Ongoing premiums In the case of a “last-to-die” policy, the surviving partner has to keep making payments after the first person dies. |
| Tax-free growth The cash portion of a permanent life insurance policy grows, tax-free. It can increase significantly over time. | |
| Estate planning Couples and business partners can ensure the heirs, loved ones, and successors have the financial means to carry on. | |
| Leave a legacy Fund charitable donations to a cause you both care about after both partners have passed away. |
Comparing joint life insurance vs individual life insurance policies
Now that you have a good grasp of joint life coverage and its benefits, you can compare it side-by-side with the option of individual plans for you and your partner.
| Joint coverage | Individual coverage | |
|---|---|---|
| Cost | Typically, less expensive because the insurance company saves time and takes on less risk. | Potentially higher cost than a joint life insurance policy due to risk factors that are unique to each individual. |
| Coverage | Covers two people under one policy, typically a couple or two business partners. | Covers one person per policy. |
| Policy Type | Partners can choose either first-to-die or last-to-die permanent life insurance policies, including Term 100 or Whole Life. | Individuals can choose from a variety of policy types, including term life, whole life, and universal life coverage. |
| Policy Management | Simple and convenient as there’s only one policy to manage. | Can be complex and time-consuming as there could be more than one policy to manage. |
| Flexibility | Less flexible if life circumstances change, such as divorce3 or business dissolution4. | More flexible, allowing for different coverage amounts, terms, and beneficiaries for each person. |
| Payout | Only one payout is made, either after the first death or the second, depending on the policy type and as long as it remains in good standing. | Each policy in good standing pays out upon the death of the insured individual. |
| Suitability | Ideal for couples and business partners with estate planning and business succession needs. | Ideal for individual with dependents, single parents, people with large debts, and homeowners. |
Is joint life insurance a good idea?
Joint life insurance is offered as an alternative to individual policies when the circumstances make it a better option. Everyone should choose with the guidance of an insurance advisor.
For couples, joint coverage offers an affordable solution when age, health, or lifestyle make individual coverage expensive. It also assists in the transfer of wealth by giving heirs the financial means to deal with estate tax or capital gains on assets like a family cottage.
For business partners, joint coverage can pave the way for a smooth transition when the second owner dies. As part of a tax-effective succession plan, it can help the business carry on well beyond their lifetime.
Charitable Giving
Couples and business partners who share a passion for a charity or cause can name them as the beneficiaries of a tax-free payout to create a lasting and meaningful legacy. Learn more about donating life insurance benefits.
How to choose the right joint life insurance policy
There’s a lot to think about when you’re making a financial decision with someone else. Fortunately, the Serenia Life team is here for you. We’ll help you and your partner chart a course based on your shared goals and what you want to protect.
We’re here to answer your questions, personalize your coverage, and stay with you over the years to make any adjustments for all of life’s big events. The experts at Serenia Life will take the time you need to help you make the right decisions for today and the future. If you have questions, a Serenia Life advisor can help you put the right coverage in place.
Disclaimers
1 life insurance claims statistics 2018-2023
2 once all required documents are submitted
3 In the event a couple gets divorced, each partner may require new individual policies to ensure each partner’s financial interests are protected; any total cash values on the joint life policy may need to be liquidated.
4 In the event of business dissolution, each partner may require new individual policies to ensure each partner’s financial interests are protected; any total cash values on the joint life policy may need to be liquidated.