How to Select the Best Joint Life (First to Die) Life Insurance Policy

As with any type of insurance policy, the insurer’s ability to pay as measured by its financial strength and stability is a critical element in the selection process. (See Chapter 3, “How to Determine the Right Company,” for a discussion of this issue.)

Otherwise, the best policy is the one that has the combination of features desired at the lowest overall cost. 

The basic plan of insurance will greatly affect the schedule of premiums and the availability, if any, of cash values. Annually renewable term JL will offer the lowest initial premiums, but premiums will escalate rapidly as the named insureds age. Level premium term JL will offer lower annual premiums than permanent plans, but will provide little, if any, cash value accumulations. If the need for insurance is short-term as, for example, may be the case with certain key employees who will retire at a specified age, level premium JL may be the best plan. Permanent types of insurance will require larger premium outlays, but will assure coverage at a known maximum premium outlay for an extended term in the event the insureds live longer than expected. If tax-preferred cash value accumulations are also desirable, some type of permanent plan probably would best serve the need. Permanent plans, and especially universal life plans under option B, offer increasing death benefits if one expects the insurance need to increase over time.

Other policy features and riders also are available. Among the options are:

  • Substitute insured options – Some insurers offer riders that permit substitution of insureds with evidence of insurability. This is an attractive feature in buy-sell plans or key person plans where there is a potential for change of partners or stockholders or in personnel in key positions.
  • Guaranteed purchase riders – Some insurers also offer guaranteed purchase riders that permit surviving insureds to buy insurance either on themselves or other surviving insureds without evidence of insurability which may be a critical element in buy-sell arrangements.
  • Joint premium waiver – Several companies offer a joint disability premium waiver that is designed principally for the family market.
  • Split option – Some companies permit insureds to split the policy into two separate policies on each insured, each with a face amount of coverage equal to the JL face amount. The insurers usually require evidence of insurability to exercise this option.
  • Graded premium plans – If resources to pay premiums are initially low but are expected to increase over time, policyowner(s) may find a graded premium plan attractive. A graded premium plan permits policyowners to pay lower initial premiums comparable to term premiums that increase over time to a level somewhat above what the level premium would be with traditional whole life.
  • Common disaster clause – Some policies include a provision that if both insureds die in a common disaster, the insurer will pay the face amount on each death. In such cases, it is imperative to name contingent beneficiaries.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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