Joint last to die life insurance is life insurance suitable for when you have losses or need protection after a second insured dies. Typically this type of coverage is for estate planning purposes, and is generally permanent life insurance instead of term life insurance.
An example would be a married couple When the first person passes, all assets generally pass to the second person without any tax implications. However when the second person passes and their estate passes down to their beneficiaries (often their children) there can be huge tax liabilities. A joint last to die life insurance policy can be a very cost effective way to pay those taxes – the money is paid by the insurance company at the second death to the beneficiaries who then use those proceeds to pay off the taxes. This prevents fast, forced sale of assets which can lead to both loss of those assets, and a lower price for those assets due to the ‘fire sale’ nature of the event.
One of the most common uses of Joint Last to Die life insurance is to protect the family cottage. Often a couple who own a family cottage want to pass the cottage down to their children and grandchildren.
Without a life insurance policy, there can be huge tax liabilities that must be paid after both cottage owners die. And since Revenue Canada isn’t known for it’s patience on getting paid for it’s tax bills, the children of the couple must either come up with perhaps hundreds of thousands of dollars very quickly, or sell the cottage to make the tax payment. Now the children have either a large amount of debt, or they’ve lost the family cottage, all at a very stressful time. Tax liabilities like this are the most common reason for cottage sales in the Muskokas in Canada.
Contrast this with a couple who have a joint last to die life insurance policy that provides coverage sufficient to cover the tax liabilities on the family cottage. When the first person passes, the cottage passes seamlessly to the surviving spouse. When the surviving spouse passes, the cottage is passed to their children and a large tax bill results. At that time, their joint last to die policy pays out, that money is used to pay the tax bill, and now the family cottage passes down to the next generation without any financial cottages or loss of the cottage.
Joint last to die life insurance generally requires coordination between a life insurance broker such as ourselves (to provide the correct insurance) and a family accountant (to provide you advice on the amount of the tax bill as well as provide guidance on structure of the proceeds). If you’d like to begin this conversation with a life insurance broker, please complete the following form and we’ll contact you to provide options.