Joint Term Life Insurance Explained
First of all, what is “Term Life Insurance” ?
Term Life Insurance is where you take out a policy to cover a death of the insured for a set period – the Term. These are typically used by people who may have a mortgage, or other large repayment commitment, and require coverage to make sure that during the period of the commitment the payments are covered in the case of death. Once the Term insurance is finished you do not get any funds in refund for not making a claim against the policy nor do you get a surrender value.
Once you stop paying the premiums of a term life insurance policy, or joint term policy, the policy will be cancelled and you will not be entitled to any refund.
Joint Term life insurance, as the name implies, is where two people are listed on the policy and payment is made if one of them dies or is unable to work. Traditionally the couple on the policy would be man and wife and the policy is created to cover a joint liability (eg a mortgage, income replacement, or other such large domestic cost).
Once claim payment has been made on a joint term life insurance policy the policy is terminated, premium payments are no longer required, and the surviving partner should sign up for a another single term policy if they have on-going commitments that the original joint policy did not cover. Some life insurance companies will provide a window of time where the surviving insured can apply without proving current health and avoid underwriting.
Can I cash in a joint term policy ?
Traditionally – no you cannot. It is used purely as death benefit coverage.
Can I transfer a joint policy to a single person’s term policy ?
Most insurance companies will allow you to convert a joint term policy into a single term policy, providing that both parties are willing to do so. This is mostly used in the case of divorce, or separation where both of the insured’s agree to separate the policy into two policies however beware that there are life insurance companies that do not allow this type of change.
If my partner and I have a mortgage must we use a joint term policy ?
Not at all. If you wish to take out a single term policy just for you (or two policies – one for each of you, you are free to do so). However you should consider some of the pit falls of a joint term life insurance policy.
All policy features are based on equivalent single age this is when the life insurance company calculates a combined age which is higher the then oldest insured. i.e. conversion and termination date.
If one insured is ill and would not qualify for a new policy the healthy insured may have to renew at the higher rate in order to maintain the coverage for the insured that is ill.
Solutions Financial is a Canadian owned and operated life insurance brokerage.