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First-to-Die Policy

What is a First-to-Die Policy?

A first-to-die policy is a type of joint life insurance that pays out the death benefit to the remaining insured when the first insured dies. It might be a good fit for spouses or business partners.

Understanding joint life insurance

When most people think about life insurance, they envision individual policies. This is coverage you buy either on yourself or on another individual in whom you have an insurable interest. Individual life insurance covers just that: one individual.

But there may be a situation in which two people’s financial wellbeing is tied to one another. People like spouses or business partners might benefit from joint life insurance, which covers two people under one policy.

A joint life insurance policy is generally cheaper than two individual life insurance policies and, as a result, can be a budget-friendly tool for pairs of people who have a vested stake in one another. First-to-die insurance can also make managing your insurance easier since you’ll only need to worry about making one premium payment with this coverage type.

First-to-die life insurance use cases

If two business partners take out a sizable business loan together, first-to-die joint insurance can safeguard them both from default if one of them suffers an untimely death.

Similarly, if a couple takes on a mortgage together, for example, buying first-to-die joint life insurance can ensure that should one of them die, the remaining person would have ample assets to carry that debt.

First-to-die life insurance can be helpful for couples in a dual-income household as a source of income replacement if one of them dies. They can also step in for couples with children in which one of the individuals is the primary caregiver for the kids. If the breadwinning partner dies, the caregiver can use the death benefit to replace their income. If the caregiving partner dies, the breadwinning partner can use the death benefit to cover the cost of childcare and other services they may need, like house cleaning or meal prep.

Setting up joint life insurance

In order to qualify for joint life insurance with someone else, you need to prove to the insurer that you have shared assets with them.

Then, you’re eligible to apply for the joint policy with the other individual. Most joint life insurance policies will require you both to submit to a medical exam.

If one of you has a medical condition that has disqualified you from getting individual life insurance, you still may be able to get joint insurance together. Be prepared to pay higher premiums than two healthy people would pay for the joint policy, though.

During the application process, you’ll also need to choose between first-to-die and second-to-die coverage.

Death benefits with first-to-die joint insurance

If you choose a first-to-die policy, the benefits activate as soon as the first insured dies. At that point, the policy’s death benefit goes to the other insured in the joint policy. If, for example, a wife and husband have joint insurance and the wife dies first, the first-to-die coverage would stipulate that the husband receives the policy’s death benefit at the time of her passing.

This contrasts with second-to-die insurance, which pays out the death benefit only when both insureds have passed away. Second-to-die coverage requires the insured to name beneficiaries who will receive the policy’s death benefit since neither of them will be around to collect it.

Separating first-to-die policies

Joint life insurance can complicate things if you choose to separate from your spouse or business partner. If you want to have flexibility with your policy moving forward, ask your insurance agent about adding a rider that can streamline splitting your first-to-die insurance into two separate policies should you want to do so in the future.

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