- Comments (27)
- Text Size: Down Up
moneysense.ca, 27/05/07
Reader Question: Joint First-to-Die Life Insurance Policy
The following question is about which type of term life insurance to buy:
We are a married couple (30 & 25 years old) expecting our first child in June. I have mortgage insurance for about $170K. Now we are looking to purchase a term-insurance policy of around $500K. My question is what do you think of joint first-to-die policies. These policies are cheaper compared to purchasing two term policies.
Congratulations on your baby and I hope everything goes well. One of the reasons I love writing this blog is that I am learning new things all the time. For example, I did not know that couples can purchase a term life policy, which pays out when the first of the two policyholders die. According to this article, the premiums on a joint first-to-die policy are about 15% cheaper than two single policies offering the same coverage.
One drawback I can think of with joint first-to-die policy is that if both of you were to die, the benefit amount would be the same as one of you passing away. If both of you are working and something were to happen to one of you, the other would likely manage just fine after an initial period of mourning. In the worst-case scenario (both of you dying) though, your child would need financial support for more than twenty years and for about 15% more in premiums, you could purchase two policies that would double the coverage. In any case, I am not an expert on this topic and I welcome comments from our readers.
moneysense.ca, 27/05/07
Congrats on the baby!
I can’t answer the question but I would suggest they lose the mortgage insurance and get term insurance for that as well. Ellen Roseman wrote a pretty good article showing the high cost of mortgage insurance http://www.thestar.com/Business/article/205853
Congratulation for the baby!
If you have a joint first-to-die policy and both of you die in the period of 45 days, your amount of insurance doubles. I don’t know if this is a special feature or not, but I do have it on mine. Also, you should cancel your mortgage insurance and increase your life insurance policy. At your age, it should be much cheaper this way. With your new baby, you should also consider looking for lack-of-sleep insurance.
FB
Mike, FB: Thanks for the comments. Good point about mortgage life insurance being poor value.
I agree 100% about the mortgage insurance. Cancel it.
Thanks for pointing out this product, I also have a baby on the way so I’ll be looking at life insurance soon. Any suggestions re-insurance companies? or are first to die policies pretty standard?
Cheers,
MCM
MCM: Congratulations on the baby! We purchased our term policies from our insurance agent at the Co-operators. I did not shop around too much because the premiums were comparable to the quotes I got from the term4sale website. The agent did not explain first-to-die policies to us (we were looking for two independent policies), so I am not sure how prevalent these policies are. One suggestion I do have is to get coverage as soon as possible and not wait till the baby arrives. The entire process takes a couple of months.
The one thing I found out about a first to die policy is that it may help if one of the parties is an insurance risk individually. You may be able to piggy back on the health record of the other couple (but it depends on who you go with as an insurance carrier).
One other point- a lot of bank insurance products are actually insurance company products white-labelled for the banks (i.e. more expensive). You may consider going straight to the source to get insurance.
Best of luck with the new family.
Link to Canadian Term4Sale website offering term life insurance quote comparison:
http://www.getterm.cc/
Ditto, drop the mortgage insurance. Each mortgage payment you make, your insurance payout drops essentially. So why keep paying the same premium?
I just got life insurance this year – most from work but I also got a $250k for 10 years from RBC Insurance, their rates were reasonably competitive.
One thing I didn’t realize is that you can cancel your policy at any time so rather than trying time your policies so they expire when you want them to…go for a longer term ie 20 years and just cancel when they are not needed anymore.
For this reason you might want to make sure that you can either downgrade the insurance amount in the future or be able to cancel parts of it.
In my case I have about $750k coverage right now but in ten years, I won’t need that much, so I’d like to be able lower the coverage amount.
Oh and thanks CC for adding me to your blogroll.
Much appreciated!
Mike
A Joint First To Die (JFTD) policy is essentially two single policies bundled together. That’s why a death benefit can be paid on each life. Insurance policies have an administration charge built-in. With JFTD, you save one admin fee. Since actuaries love playing with numbers, they may translate the two lives into an equivalent single age, which should also lead to savings (e.g., male nonsmoker 30 + female nonsmoker age 30 = male nonsmoker 38, say).
JFTD is used mainly in the family market because of the cost savings from bundling. For larger policies, the admin fee (generally a flat amount) becomes a smaller percentage of the premium. So two single life policies are usually purchased. This gives more flexibility. For example, each spouse can have a different amount of coverage. Upon divorce or separation, the policies are already separate (may need insurance for other purposes then).
Some policies let you convert a JFTD policy into two single life policies under certain circumstances. That feature may be useful should your circumstances change.
Your advisor can help you find a good solution.
Has anyone looked into the possible saving of combining life and disability policies? From the insurance companies’ point-of-view, they’re on the hook when selling the policies to two different individuals. When they sell both policies to the same person, it’s not possible for that person to claim dealth benefit and then disability.
FourPillars, I figure the longer the term, the higher the premium. When you cancel the term early, it should work in favour of the insurance co. Now they can sell the same policy to someone else with similar risk-profile for a higher premium.
FJ – that’s very true. Now that I think about it, that’s probably why I went shorter term.
FinancialJungle: insurance policies essentially promises printed pieces of paper. So it’s easy to produce another policy contract without waiting for an earlier policy to be cancelled. There isn’t overbooking as with hotel rooms or airline seats
Different benefits can be combined in one policy.
The drawback of going with too short a term is the high prices at renewal should your needs change. For example, a male nonsmoker age 30 buying $500,000 of coverage pays $300/yr for 10 years and then rates jump to $1,130 with Term 10. In contrast, Term 20 costs $445/yr for 20 years.
Congrats on your baby! Joint life first to die is nearly impossible to get in the US. It is the ideal coverage to have if you are a US citizen and your estate is large enough to be liable for federal estate taxes when you both have passed away. Why first to die? The death benefits can be paid to an Irrevocable Life Insurance Trust whose assets are apart from the taxable assets of the family. The trustee of the ILIT can then (1) invest the death benefits in a second, single premium policy, for the surviving spouse if greater coverage is needed for a growing estate, or (2) place the dath benefits into an SPDA and pay the interest to the surviving spouse as a retirement supplement. The principal would then be lest for the estate’s heirs to address estate tax issues. Traditional second to die does not have these options and may cause a problem A large second to die policy in an ILIT still requires annual gifts to keep in force after the first spouse dies. This may be difficult for a surviving spouse to maintain. For estate tax planning, first to die is an excellent product. Too bad few, if any, US companies carry this product anymore.
hi there,
I’m an insurance advisor in Onatrio if anyone of you need a best quote on insurance from any company i can provide you, you can contact me at mverma18@gmail.com.
I will provide you full knowledge on every single question in your mind.
Your original post said:
“These policies are cheaper compared to purchasing two term policies.”
Is it? Are you sure? Did the purchase compare the difference in premiums between Joint First to Die life insurance and two seperate coverages? In my experience the difference in premiums is 5% at the most – and in many cases less.
And while JFTD is suitable for certain circumstances, mom and pop family coverage isn’t generally one of them. There are drawbacks to JFTD in those circumstances. I’ve detailed some of them here:
http://www.thetermguy.com/2007/12/20/joint-first-to-die-life-insurance/
I just ran a quote from Compulife for a male and female age 40, 20 year term for $500K. Individual coverage quotes at $106.65. A joint first to die policy quotes at $102.15. So $4 a month difference. Not anywhere near as substantial as most people would expect.
There’s a couple of reasons for this. First, what’s the probability that one person dies in a year? Pretty slim. What’s the probability that one person out of 10,000 die in a year? Pretty good. So the more people who are insured under a joint policy, the greater the likelihood that the insurance company will have to pay. So there is a greater chance that the insurance company will have to pay on a joint first to die policy than a single insured. So, premiums have to be higher than for a single insured.
Secondly, JFTD isn’t a very competitively priced product in the marketplace. Conversely, 10 and 20 year term individual coverages are probably the most competitively priced life insurance products on the marketplace today. Prices are so razorsharp that a 10 year term premium is likely cheaper than 5 year term (yes, they’ll guarantee premiums for 10 years at a cheaper price than they’ll guarantee them for only 5 years). That competition in pricing again contributes to individual term insurance prices being razor sharp compared to a joint policy.
In short, make sure you’re aware of the potential drawbacks to JFTD life insurance and make sure you’ve educated yourself on the actual premiums instead of assuming that JFTD is cheaper.
“InsurCan” writes:
“JFTD isn’t a very competitively priced product in the marketplace.” Nonsense!
Joint, First To Die (JFTD or J1) is not a “product” but is a product CONFIGURATION. In other words – and I’m surprised that an insurance salesman wouldn’t know this – 10 and 20 year term products are available in single life configurations as well as other configurations such as J1, CBD (Combined Billing Discount), etc.
Instead of falling for generalizations, check for yourself. The webite http://www.winquote.net is the most comprehensive and most objective for Canada. It’s a consumer resource that quotes the largest number of insurance companies, the largest number of products, the widest array of products, discloses the renewal costs, etc. – but doesn’t ask for your name or telephone number. In addition, and related to the discussion in this thread, it’s not limited to single life configurations only but also quotes the products – including the 10 and 20 year term, etc. – for Joint Life, including J1 (Joint First To Die), J2 (Joint Last To Die), as well as for Combined Billing Discount configurations, etc.
Moreover, if you are dealing with a broker rather than a single company captive agent, it may be to your advantage to check out the opportunities under “Multi-Life”. This is particularly so if the two individuals differ in gender, present or past tobacco use and (health and other) risk aspects, dates of birth, etc. In some cases, it may actually turn out to cost less in total to have one of the individuals insured with one company and the other with another.
Another matter to consider, a matter that hasn’t been raised yet in this thread, is that most term insurance policies base their pricing on “Age Nearest”. What this means is that if you are 39 years old and your 40th birthday comes up in just under 6 months, most insurance products will be quoted at you for age 40 rather than age 39.
The difference of one year in “Insurance Age” could mean thousands of dollars of difference in the premium costs of the policy over the years. There are two pieces of good news, however. The first is that if your upcoming birthday is less than 6 months away but more than 4 or 5 months months away – and WHEN REQUSTED – insurance companies may accept backdating of the contract date to “conserve age” (ie, to give you the same coverage at a lower premium). The second piece of good news is that there are thousands of consumer interest oriented brokers across the country who are equipped with the LifeGuide Professional Software with its built-in capabilities to automatically detect “age conservation” opportunities that may exist. In a nutshell, a LifeGuide equipped broker may successfully lower your premium costs beyond the prices quoted on-line.
Simply ask your broker to provide you with a LifeGuide survey before you commit to signing an application. You may save thousands by doing so.
A few additional notes as addendum to the above:
1. The J1 (Joint, First To Die) configuration (when the circumstances merit) is a worthwhile consideration for TERM insurance but generally not so for “permanent” insurance nor “term” insurance having a period longer than 20 years. (Note: every rule has exceptions, including this one)
2. Likewise, J2 (Joint Second To Die or Joint Last (of two individuals) To Die) is a worthwhile configuration consideration for “permanent” insurance but not for “term” insurance. (Here, also, there are rare exceptions).
3. When you negotiate to buy a house or a car – and even when you just rent a car while on holidays – you get a chance to read the contract before you commit. Term insurance contracts and other life insurance contracts are not “standard” identical documents. To the contrary, the contracts may substantially differ in their wordings, definitions, provisions and exclusions. Likewise, the application forms also differ as do the definitions for such fundamental aspects as “preferred” (and its various marketese permutations). WATCH OUT for such questions as those involving present or past tobacco use. For example, as far as nearly all insurance companies are concerned, if you had last cigarette more than a year ago but were ‘on the patch’ or nicotine gum or the like up to 11 months ago you are a smoker, not a “non-smoker”. A mistakenly or intentionally made misrepresentation in such a matter may void your contract altogether. If you don’t understand a question or a statement fully, ask the agent/broker to explain it to you fully. Make sure that each and every question on the application form (which, incidentally becomes part of the contract) is answered FULLY and truthfully. If you are going to pay those premiums, you want to make sure that the contract will be valid when and if the covered unthinkable happens.
I have to say that I have never heard of that either, but I like the idea of just having to get one life insurance and have it for whoever dies first. I don’t have kids yet, but it brings some relief to know that something like this is out there. Now all they need is the same kind of two-in-one deal for my cars.
Differing configurations and designs of life insurance offerings are suitable for differing needs. This is no different than for medications, car parts or whathaveyou… If your engine will not start on a cold day, replacement of your brake pads will likely not get your car to start. Likewise, salt is not a good substitute for mixing in your morning latte if you are a diabetic, even if it may look similar to sugar.
A good life insurance advisor will strive to offer the solution that appears to be best suited for the need, your individual circumstances and the amount that you can comfortably afford to address the need. Conversely, a policy peddlar will pitch the easy sale “flavour of the day” policy from his/her selected insurance companies. A joint, first-to-die (JF) contract (note that there are differences among those as well), may be suitable for a joint single risk – for example to get rid of a mortgage or other large debt. A joint, last-to-die, contract (JL) may be suitable for a joint single risk such as taxes payable on capital gains or tax deferral instruments (eg RRSP or RRIF, etc.) at second death among husband and wife.
There are dozens of insurance companies and literally thousands of policy configurations available on the market. There is no single insurance company who is “best” for all needs and circumstances. What you need is a good advisor who:
a. Knows what (s)he is doing (ask for credentials and experience)
b. Will invest the time and effort to identify your needs and recommend the most suitable solution to YOUR needs
c. Places YOUR interests and financial needs ahead of his/hers.
d. Shops the market and has cares to invest in and use professional tools to do so (the market changes rapidly and tools such as LifeGuide are a must to properly and professionally shop the market)
The same policy will have the same costs, regardless of whether purchased from a professional full-service advisor or from a policy peddlar door to door, over the internet, or telemarketed over the phone. The professional service fees (aka “commissions”) are built into the premium that YOU pay, regardless of whether you get or not get the service. There are thousands of consumer interest oriented life insurance advisors who are equipped with the LifeGuide Professional software and service. A database of these professionals, searchable by postal code is available to everyone at http://www.winquote.net and the searches are free of charge.
Stumbled across this article again and have a couple further comments:
.
- I provided hard numbers to back up my claim that premiums for joint first to die insurance were less than 5%. The username ‘check4yourself’ called this claim nonsense, but provided no data to counter my point. Pointing at a fact and calling it nonsnes isn’t a reasoned argument. It’s either religion or politics
- Have a look at the comments check4yourself posted about the site winquote.net. Why would a random, anonymous consumer post such a glowing description of that site, and post such a harsh attack of my comments.
- check4yourself doesn’t understand how joint first to die premiums are calculated. They are based on the underlying and competitive term premiums, but then the companies use an ‘equivalent single age’ calculation that says ‘person a + person b’ are equivalent to person c for the premiums. If the calc to arrive at person c gives an age of 25 or 50, there’s a wide range of premiums between the competitive term premiums and the joint first to die premium. In fact, I just received noted that an insurance company was increasing it’s joint first to die premiums by increasing the equivalent single age calculation. Joint first to die rates going up, competitive term rates no change – despite the debunking that check4yourself tried to do.
Glenn Cooke’s laments the lack of “hard numbers”, so here we go:
Let’s use the same parameters as that those in Glenn Cooke’s pitch: Male and Female, age 40 last and nearest 20-year term $500K:
As individual policies, per http://www.winquote.net competitive premium for the male as an individual is $43.20/Mo and for the female, $29.70/Mo. Total as individuals with independent policies $72.90. For the same two individuals with all else remaining the same but on a Joint, first-to-die basis: $65.70/Mo. So we have a difference of $8.20 per month. Please note that these figures are current as of this date.
To arrive at the percentage savings, the math is simple $8.20/$72.90*100=11.25%. Hard fact, but that is a substantial savings of more than twice the “less than 5%” that is pitched by Glenn Cooke. So, we arrive at the same conclusion: The statement “JFTD isn’t a very competitively priced product in the marketplace.” is nonsense!
Readers will notice that my example was not countered, instead a new example was provided to counter my claim. Why would someone not counter my specific example and instead provide a different example?
Readers may also notice the emphasis with which check4yourself seems to want to drop links in every one of their posts. Perhaps this anonymous poster has an agenda.
How unfortunate that Glenn Cooke, who is apparently an insurance salesman, would not simply admit that he erred in his posting but instead elected to distract readers attention from the topic being discussed. To remind Mr. Cooke, the topic being discussed is the pricing and competitiveness of Joint, first to die life insurance.
Glenn Cooke asked for “hard numbers” as he apparently did not understand. For his benefit and for the benefit of readers, I cited the example as he requested. To make it easier for him to follow and understand, I used the same parameters noted in his pitch and also cited the source for reference. To make it even easier and clearer for Glenn Cooke, I also detailed the calculation (see my posting of March 6th).
I don’t sell insurance but do buy it as needed. As noted in an earlier posting, each person’s needs and circumstances are unique. In my view, it is the duty of insurance agents who sell insurance to the public to be knowledgeable, objective and unbiased, and to strive to provide the consumer with the most suitable alternatives.
The alternatives may include one or a combination of individual policies, Joint life policies, available offerings of combined billing discounted policies, or single policies where a second insured is added to the first in the form of a “rider”. The suitability and merit of any of the alternatives depends on the unique needs and circumstances of each case. Sweeping biased cookie-cutter generalizations and concocted allegations to distract readers are not helpful but are counter productive.
I wish to add another comment to this thread. Before doing so, however, it should be stressed again that each individual case is unique and merits individual consideration and examination.
It is also of merit to note that “Joint, first to die” configured life insurance policies may, and often do, differ substantially in various aspects. It is important to keep in mind that life insurance policies are legal contractual documents that include the rights and obligations of each of the parties (the insurance company and the “owner” of the policy). In Joint, first to die contracts, the wording of the policy contract also indicates such important matters as to whether the surviving person may continue coverage, and under what conditions. For example, whether the surviving person has to make a formal request for continuation of coverage, is there a time limitation (such as 45 days or 30 days from the date of death of the other person, etc.) for making such a request or whether coverage continues automatically (and without the need to make a formal request for continuation), what happens if both people are killed at the same time in an accident, etc.
While I am not a lawyer and none of this posting is intended to give advice in law, my view is that one should not enter into a legal contract without first having the opportunity to read and understand the agreement that is spelled out in that legal contract. Since life insurance IS a legal contract, my view is that is likewise applicable to buying life insurance. Even more so:
In addition to normal elements of contracts, life insurance contracts have additional requirements/elements. One of these is a requirement of utmost good faith, which in my view includes full disclosure by each of the parties (the insurance company and the policy buyer) to each other. Regardless of the type or configuration of the life insurance policy contract, failure to disclose could be a reason to render the contract “null and void”. The buyer of the insurance contract is obliged to accurately and fully disclose everything that is asked for in the insurance application form (which, by the way, also becomes part of the contract itself) and anything that is or could be related to application questions.
Likewise, the insurance seller (agent/broker) who is paid by the insurance company for selling the insurance should disclose in writing his or her reasons and basis for recommending the specific contract, along with the contract wording (not just a brochure but a specimen of the contract itself), initial and future premium costs, “residual values” (such as yearly guaranteed cash values), etc. As an insurance buyer, that is the minimum in WRITTEN disclosure that I would seek from an insurance agent or broker BEFORE agreeing to proceed with a written life insurance application. Again, readers should keep in mind that a life insurance policy is a legal CONTRACT and, in my view, consumers have a right to full disclosure of its terms, conditions, exclusions, limitations, costs and values, before making an application to enter into the contract.
lolo. Dude, that’s a lot of writing. And it still doesn’t refute the fact that I gave an example that shows you can get similiar coverage for the less than 5% that I claimed. To get that information I used the same data that they use at Termforsale.ca.
You countered that with an example that shows higher premiums, using your database at winquote.net.
I don’t dispute that you can find higher prices than what I’ve quoted. Maybe you should try using a different database for your quotes.