Joint First to Die Life insurance in Canada is life insurance that covers two people but pays out only one death benefit after the first person passes.
JFTD life insurance is often term life insurance as insurance that pays ‘when the first person passes’ isn’t generally a need that one has for life. (By contrast, joint LAST to die life insurance would be permanent life insurance instead of term). As a result, you can purchase a JFTD term life insurance policy just like an individual policy – as a 10 year term, 20 year term, or even 30 year term.
Note: We recommend that Canadians seek out two individual term life insurance policies instead of a joint first to die term life insurance policy.
Canadians would generally assume that a JFTD policy should be cheaper than two individual policies, because it’s only paying out one death benefit. And on the surface, this would appear to be the case. But in practice, it turns out this is not actually correct.
Most JFTD term life insurance polices today have a provision that says if one person passes, and the death benefit is paid out, that the surviving person has the option of purchasing their own individual policy at that time for the same coverage. The effect of that is that JFTD term life insurance policies generally would potentially pay out two death benefits – just like two individual policies.
Further, if both people pass at the same time, many JFTD term life insurance policies in Canada will pay out two death benefits – again just like two individual policies.
Joint First to Die term life insurance premiums
The result is that JFTD term life insurance policies are slighltly less expensive than two individual term life insurance policies, the difference is miniscule – often less than a 5% savings compared to two individual policies. Still if it’s pretty much the same insurance, but at a 5% savings, why not take it? Well, it turns out that there’s some substantial drawbacks to JFTD term life insurance policies compared to two individual policies.
Premium example: $500,000 20 year term, Male and Female Age 40
JFTD Premiums: $115
Two Individual Policies: $124 (about $9/month difference)
Next, by the very nature of JFTD policies, you’re forced to have the same coverage on both individuals. There’s no way to provide coverage for $500,000 for one insured and $1,000,000 of coverage on the second insured in a JFTD policy.
Lastly, and much more hidden but perhaps more importantly, is benefit expiry on JFTD policies – and in particular, the conversion option. The conversion option lets you exchange your term policy for permanent life insurance in the future, even if you’re uninsurable. This is a very important benefit towards the end of most term life policies, as consumers get older they often want permanent coverage (and more so if they become uninsuable). With JFTD policies, you can potentially lose the conversion option where you would still have it with two individual policies.
This is because of the way ages are calculated. Lets say the conversion option expires at age 65, and you’re both 45 with individual 20 year term life insurance policies. In this case, you have the conversion option available to you right to the end of the term – age 65, in 20 years.
But with a JFTD policy, your policy age is calculated as a ‘equivalent, older age’ for both of you. IN this case, two 45 year olds might have a JFTD policy age of 50. But conversion still expires at ‘age’ 65. So in this case you would lose the conversion option in 15 years – 5 years before the end of your term. And when would you most likely want the conversion option? At the end of your term – when you’re older, and most likely to have become uninsurable. Losing the conversion option on a JFTD policy and then needing it later, in our opinion makes the small difference in savings not worth it – and that’s why we recommend two individual term life insurance policies.