Joint Universal Life Insurance: How it Works and its Advantages

One typical worry from people who take out life insurance is how to find a way to include coverage for other people, generally spouses. The simplest, most beneficial way to do this is to turn to joint universal life insurance. This is a type of policy that allows you to include your significant other in your insurance so that one payment includes coverage for two people. Some of these insurance policies make their payout as soon as one of the insured parties dies, while others do so after the death of both. It is always universal permanent life insurance, but with modifications to the clauses and conditions.

If you are looking for insurance that can solve this problem, keep reading this article. We will tell you how it works and the advantages that joint universal life insurance offers.

Joint Universal Life Insurance: Table of Contents

What is Joint Universal Life Insurance?

How Joint Insurance Policies Work

First to Die or Second to Die: the Differences

Advantages of Joint Life Insurance?

What is Joint Universal Life Insurance?

When you take out life insurance, you ensure that your loved ones will receive a payout when you die. But what if the person who passes away is not you, but your significant other, and he or she does not have life insurance? Can you keep moving forward with your family and maintain your standard of living and quality of life without the presence of your spouse and his or her contribution? In order to alleviate this problem, you can choose to take out more than one policy, but this may be very costly because policies can multiply, and with them, monthly premiums. This is why the best solution is to look for an policy that lets you include more than one person. The most recommended option is the so-called joint universal life insurance. This kind is not in high demand and only a few companies offer it. However, it has many attractive elements and is and option to consider.

Basically, if you undersign a joint insurance policy, you can include another person on the same policy. Many couples, married or otherwise, choose this solution: one of the spouses undersigns the policy, and then includes the other person as another insured party. In case of the death of either of the two, the surviving spouse receives a payout that allows them to, for example, keep paying the mortgage or other loans, or simply maintain the family's rhythm of life.

These policies are also often undersigned by small business owners, so that if one passes away, the other can receive the death benefit and keep the business going.

They are also known as 'first to die’ policies, meaning that they are policies that make their payout as soon as one of the insured parties dies. The other kind is 'second to die,’ meaning that they pay when the surviving party of the two dies. This variant is also known as life insurance with survivorship rights.

In any case, the insurance taken out is always universal permanent life insurance, one of the most attractive options due to its capacity for savings and flexibility regarding its functional configuration.

How Joint Insurance Policies Work

Taking out one of these policies is, above anything else, a cost-savvy option. Insuring two people on the same insurance is generally cheaper than having two policies. Typically, the cost of the premium is a little bit higher, but not as high as it would be if you had undersigned two life insurance policies.

This is due to the fact that joint insurance only makes one payout, not one for each insured party. Therefore, the risks assumed by the insurer are relatively minor, so they can offer very reasonable prices.

In addition, these policies have a simpler subscription stage. The qualification processes are a little less demanding, especially if one of the insured parties is in good health and has few risks. All of this means that insurers may offer quite accessible premiums and cover two people at the same time.

Either way, and as with all insurance that has demanding qualification processes, it is advisable to be honest and sincere and not hide any information from the insurer.

In addition, policy beneficiaries, the people who will collect the death benefit, should be designated at the time of subscription. Generally, this is the other insured person, but other beneficiaries can also be named, such as children. As with other insurance policies, it is important to choose the beneficiaries carefully, and above all, let them know that the policy exists. In addition, you can name other beneficiaries as many times as you want.

Once the insurance has been subscribed, it comes into effect and remains active until one, or both, of the insured parties dies. During the years in which it is in effect, joint insurance follows the functional logic of a universal insurance, one of the the most frequently used kinds of permanent insurance.

Permanent life insurance is all insurance that remains active until the death of the insured, in contrast with temporary or term insurance, which has a specific duration period. There are different kinds of permanent life insurance policies: ordinary or traditional life insurance, universal life insurance, variable life insurance and variable universal life insurance.

The kind associated with joint insurance is called universal insurance. This is a type of insurance where the insured enjoys a lot of flexibility. You can adjust the premiums you pay so that, if for a certain period of time you do not have enough money, you can reduce or even suspend payment. Remember that if you reduce payment, the insurer covers the missing payment with the indemnification, so make sure to pay attention so you do not put your beneficiaries in a difficult position. But you can also increase your contribution and reinforce the savings capacity of the insurance.

This capacity for savings is precisely one of its defining characteristics: using the money you contribute through your premiums, the insurer invests in savings accounts with a guaranteed return. The insurance accrues what is called cash value, a quantity that the insured receives at a pre-determined time at a tax-deferred rate. In addition, it can be used to back loans against their future value.

If your policy is one where the payout is made at the death of just one of the policy holders, that is when it expires and the surviving party ceases to be covered. Some policies include an option for this person to take out a new policy within a short time frame. This insurance policy, which will also be universal, does not require a new qualification process. It is an interesting option because it allows you to keep a policy in effect that will offer a new payout for all beneficiaries when the surviving member of the initially insured couple dies.

First to Die or Second to Die: the Differences

If you are interested in potentially taking out a joint life insurance policy, you should have a good understanding of the differences between the two options that are out there: first to die or second to die.

• First to die. This is the most common form of joint life insurance, the best known and most widespread option. One single policy, one single monthly premium, and one single payout, which is made at the time of the first death of the two insured parties. At this time, the surviving party—or the designated beneficiaries—receive the death benefit and the insurance loses effect. However, as we saw earlier, some policies offer a clause that allows the surviving insured party to take out a new universal insurance policy at that time, without the need to go through the qualification process and at a lower price than the joint insurance.
• Second to die or life insurance with survivorship rights. In this case, the opposite happens: the policy pays out the death benefit when the surviving party of the insured couple dies. This payout goes to the designated beneficiaries. But in addition, in many cases this kind includes what is known as "survivorship rights,” which tends to translate into an annuity. This annuity is a monthly payment that comes from the cash value of the insurance and is paid to the surviving spouse after the first death of one of the insured parties. This way, for example, the surviving spouse can maintain his or her standard of living after the death of the other spouse and leave the payout for the inheritors or beneficiaries. The ‘second to die’ payment is cheaper than the ‘first to die’ payment, as the insurer understands that the covered risks to be smaller.

Advantages of Joint Insurance Policies

With all these possibilities, joint universal life insurance is an interesting option whose advantages are worth assessing:

• Lower premium costs. Joint insurance is cheaper than two separate insurance policies. Only in very specific situations is it more cost-effective to take out two policies. For example, if one of the people being insured is having major problems with becoming qualified.
• Simpler qualification. Since two people are insured, the risks go down, and as such, the qualification period is simpler and the insurance is more accessible. In fact, for people who are having difficulties taking out a life insurance policy for themselves for reasons like a dangerous lifestyle, this can be the only way to get a policy.
• Give your business reinforcement. If you have a small business split between you and someone else, a partner or your spouse, this insurance allows you to add financial backing that will allow you to keep the business afloat if one of the two partners passes away.
• Loans against cash value. As is the case for any universal insurance, you can request loans against the cash value accrued by your insurance. In addition, you will have all of the flexibility options that are always offered by policies of this type available to you.
• Tax advantages. Permanent insurance has interesting tax advantages. For example, cash value pays deferred taxes. And death benefits are completely tax-free when paid out.

As you can see, there are good reasons for choosing joint universal life insurance. However, you also need to be aware of certain disadvantages:

• There is only one payout. Although there are two insured parties, there is only one policy, and as such, even if both people pass away, only one payout is made. This may not be enough money to support a family, so you need to know whether the death benefit money can meet pending payments and obligations.
• Problems in the event of a separation or divorce. If the insured couple decides to separate or get divorced, it can be very difficult to divide the insurance up. Some policies offer clauses in order to transform the insurance into two independent universal life insurance policies, which is an option that is worth keeping in mind.
• Problems for the surviving party. In the case of policies that are paid out after the death of the second insured, it may be that the survivor has to pay expenses, such as funeral expenses for the other person, without having received the payout. This is why, it is worthwhile to include survivorship clauses in these policies, which ensure an income after the death of the first person. You can also use final expense insurance to back the funeral payments of the first person to die.

As you can understand, you need to weigh the financial needs of the insured parties and dependents very carefully before taking out a joint universal life insurance. Therefore, we recommend that you go to your nearest insurance office and talk with an agent there, who will explain this type of life insurance to you in greater detail.