You and your spouse may share a bank account, a home, or a business. How about an insurance policy? There are good reasons to consider joint insurance coverage – commonly known as ‘joint last-to-die’, a single contract based on the lives of two or more individuals. This type of coverage makes sense when the individuals insured share a common liability that will only arise upon the death of the second person, usually a spouse. Compare this to single life coverage which is based on the life of one individual and provides funds on death to cover an immediate need – an appropriate form of insurance coverage for many.
It is common tax planning to “roll” assets to the surviving spouse on death. This defers the tax liability on any inherent capital gains until the death of the surviving spouse. Purchasing joint last-to-die insurance matches the receipt of the tax free insurance proceeds to the payment of the tax liability.
Aging generations traditionally invest in fixed-income products and as a result need to balance a low rate of return with higher tax rates and possibly the sale of assets. These events increase today’s tax burden and ultimately erode the estate you intend to leave. Putting a joint insurance product in place may work better in this situation, if the survivor doesn’t immediately need the cash.
Does joint insurance coverage cost more?
The good news is that joint coverage is less expensive than purchasing single life coverage on either lives. Because the Joint Life Expectancy for two individuals is longer than for a single person, the cost of insurance for a joint policy is lower than either single life cost. And like single life coverage, that cost is fully guaranteed!
Your advisor can introduce you to a variety of strategies that utilize joint coverage in order to address the intergenerational transfer of wealth, charitable giving opportunities and other legacy planning objectives. After all, your mutual goal is to ensure that the surviving spouse is well looked after.
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