First To Die Life Insurance: A Guide For Couples

 

Introduction

Life insurance is a vital financial tool that can protect your loved ones in case of your untimely death. But did you know that there are different types of life insurance policies that can suit different needs and goals? One of them is called first to die life insurance, and it is designed for couples who want to secure each other’s financial future.

First to die life insurance is a type of joint life insurance that insures the life of two people, typically a married couple, such that in the event of either of their deaths, the survivor receives the death benefit1. This is different from second to die (or survivorship) life insurance, which pays out only when both spouses die2.

First to die life insurance has several benefits and drawbacks for couples, depending on their situation and objectives. Some of the benefits include lower cost, easier underwriting, income replacement, estate planning, etc. Some of the drawbacks include reduced coverage, limited options, potential tax implications, etc.

In this article, we will explain what first to die life insurance is, how it works, who should consider it, what are the alternatives to it, and how to choose the best policy for your needs and goals.

How Does First To Die Life Insurance Work?

First to die life insurance works similarly to a regular life insurance policy, but with some differences. Here are some of the basic features and mechanics of first to die life insurance:

• Premium payments: You pay a monthly or annual amount to keep your coverage active. The premium amount depends on several factors, such as the age, health, lifestyle, and coverage amount of both spouses.
• Death benefit amount: You choose how much money you want your surviving spouse to receive if one of you dies. The death benefit amount can range from a few thousand dollars to millions of dollars.
• Policy term or duration: You choose how long you want your coverage to last. The policy term or duration can be either term or permanent. Term policies last for a specific period of time, such as 10, 20, or 30 years. Permanent policies last for your entire lifetime, as long as you pay the premiums.
• Death benefit payout: When one spouse dies, the surviving spouse receives the death benefit as a lump sum or in installments. The death benefit is usually tax-free and can be used for various purposes, such as paying off debts, covering living expenses, funding education, etc.

Who Should Consider First To Die Life Insurance?

First to die life insurance may be a suitable option for couples who want to protect each other financially in case of death. However, not all couples may need or benefit from this type of policy. Here are some of the scenarios and situations where first to die life insurance may be a good fit:

• Both spouses have similar incomes and financial obligations: If both spouses contribute equally to the household income and expenses, losing one spouse’s income could have a significant impact on the surviving spouse’s financial situation. First to die life insurance can help replace the lost income and maintain the same standard of living.
• One spouse has a higher income or more assets than the other: If one spouse earns more money or has more assets than the other spouse, losing that spouse’s income or assets could create a financial hardship for the surviving spouse. First to die life insurance can help preserve the wealth and lifestyle of the surviving spouse.
• One spouse has a health condition or a risky occupation that makes individual life insurance more expensive or difficult to obtain: If one spouse has a pre-existing medical condition or works in a hazardous occupation that increases their risk of death, getting an individual life insurance policy may be costly or challenging. First to die life insurance can help lower the cost and ease the underwriting process by combining both spouses’ risk profiles into one policy.
• The couple has minor children or dependents who rely on their income: If the couple has young children or other dependents who depend on their income for their basic needs and future goals, losing one spouse’s income could jeopardize their well-being and security. First to die life insurance can help provide financial support and stability for the children or dependents after one spouse’s death.
• The couple wants to leave a legacy or a charitable donation after their death: If the couple has a philanthropic or altruistic motive and wants to leave a legacy or a charitable donation after their death, first to die life insurance can help fulfill their wishes and make a positive impact on the world.

For example, let’s say John and Mary are a married couple in their 40s with two children. John is a lawyer who earns $150,000 per year, and Mary is a teacher who earns $50,000 per year. They have a mortgage, car loans, credit card debts, and college savings plans for their children. They want to buy life insurance to protect each other and their children in case of death.

They decide to buy a first to die life insurance policy with a $500,000 death benefit and a 20-year term. They pay $100 per month for the policy. If John dies first, Mary will receive $500,000 tax-free, which she can use to pay off the debts, cover the living expenses, and fund the children’s education. If Mary dies first, John will receive $500,000 tax-free, which he can use for the same purposes.

What Are The Alternatives To First To Die Life Insurance?

First to die life insurance is not the only option for couples who want to buy life insurance. There are other types of joint or individual life insurance policies that may suit their needs and goals better. Here are some of the alternatives to first to die life insurance:

• Second to die (or survivorship) life insurance: This is the opposite of first to die life insurance. It pays out a death benefit only when both spouses die. This type of policy is more suitable for estate planning and tax purposes, as it can help preserve the estate value and reduce the estate taxes for the heirs. However, it does not provide any income replacement or financial support for the surviving spouse.
• Separate term or permanent life insurance policies for each spouse: This is the most common and flexible option for couples who want to buy life insurance. Each spouse buys their own individual life insurance policy with their own premium, death benefit, term or duration, beneficiary, etc. This way, they can customize their coverage according to their needs and goals. However, this option may be more expensive and complicated than buying a joint life insurance policy.
• Hybrid policies that combine first to die and second to die features: These are rare and complex policies that offer both first to die and second to die benefits in one policy. For example, a joint-and-survivor policy pays out a partial death benefit when the first spouse dies and the remaining death benefit when the second spouse dies. A joint-and-last-survivor policy pays out a full death benefit when the first spouse dies and another full death benefit when the second spouse dies. These policies may offer more coverage and benefits than a single joint life insurance policy, but they may also be more costly and difficult to find.

Each alternative has its own advantages and disadvantages, such as cost, coverage, eligibility, etc. Therefore, couples should compare and contrast different options before deciding which one is best for them.

How To Choose The Best First To Die Life Insurance Policy?

Choosing the best first to die life insurance policy for your needs and goals can be challenging, as there are many factors to consider and options to choose from. Here are some tips and guidelines on how to find and select the best policy for you:

• Determine how much coverage you need and how long you need it for: You should calculate how much money your surviving spouse would need to pay off your debts, cover your living expenses, fund your future goals, etc., after your death. You should also estimate how long your surviving spouse would need this financial support. This will help you decide how much death benefit you need and how long your policy term or duration should be.
• Compare quotes and rates from different insurers and agents: You should shop around and compare quotes and rates from different insurers and agents who offer first to die life insurance policies. You should look for the best value for your money, not just the cheapest price. You should also check the reputation and ratings of the insurers and agents you are considering.
• Review the policy terms and conditions carefully: You should read and understand the policy terms and conditions carefully before signing anything. You should pay attention to details such as the premium payments, death benefit amount, policy term or duration, exclusions, limitations, riders, endorsements, etc. You should also ask questions if anything is unclear or confusing.
• Consider adding riders or endorsements to enhance your coverage or benefits: Riders or endorsements are optional features that you can add to your policy for an extra cost. They can enhance your coverage or benefits by providing additional protection or flexibility. For example, you can add a waiver of premium rider that waives your premium payments if you become disabled; or an accelerated death benefit rider that allows you to access part of your death benefit if you become terminally ill.
• Consult a financial planner or an insurance expert if you have any questions or doubts: Buying a first to die life insurance policy can be a complex and important decision that affects your financial future and your loved ones. Therefore, you should consult a financial planner or an insurance expert if you have any questions or doubts about your options, needs, goals, etc. They can help you assess your situation, compare different policies, and choose the best one for you.

Conclusion

First to die life insurance is a type of joint life insurance that pays out a death benefit to the surviving spouse when one of them dies. It can be a suitable option for couples who want to protect each other financially in case of death. However, it is not the only option, and it may not suit everyone’s needs and goals.

First to die life insurance has several benefits and drawbacks, depending on the situation and objectives of the couple. Some of the benefits include lower cost, easier underwriting, income replacement, estate planning, etc. Some of the drawbacks include reduced coverage, limited options, potential tax implications, etc.

There are also alternatives to first to die life insurance, such as second to die (or survivorship) life insurance, separate term or permanent life insurance policies for each spouse, or hybrid policies that combine first to die and second to die features. Each alternative has its own advantages and disadvantages, such as cost, coverage, eligibility, etc.

To choose the best first to die life insurance policy for your needs and goals, you should determine how much coverage you need and how long you need it for, compare quotes and rates from different insurers and agents, review the policy terms and conditions carefully, consider adding riders or endorsements to enhance your coverage or benefits, and consult a financial planner or an insurance expert if you have any questions or doubts.

First to die life insurance can be a valuable financial tool that can help you secure your spouse’s financial future in case of your death. If you are interested in buying a first to die life insurance policy, you should start by contacting an independent insurance agent who can help you find and compare different options and guide you through the process.