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Joint life insurance Canada


 There are two types of joint life insurance in Canada – Joint First to Die (JFTD) and Joint Last to Die (JLTD).

 Joint first to die is often perceived of as a way to insure a couple at a cheaper premium than two individual policies. In fact, these policies have some serious deficiencies when compared to two individual policies while providing little if any savings. Therefore we recommend that in almost all cases that you consider two individual coverages rather than a joint first to die.

Joint first to die would be appropriate if the two insureds have no financial dependents (i.e. children) and assume that in the event of one of their deaths, that there’s no need for life insurance for the surviving spouse. Otherwise, again, we recommend two individual policies.

Joint second to die however does have some niche applications, mostly around tax and estate planning. Because it pays a death benefit on the ‘second’ person’s death, and nothing on the first, it’s of course good for when there’s something about the second person’s death that causes a loss or requires payment.

And what that generally means is taxes. For example, if one person in a married couple passes away, generally their assets will pass to their surviving spouse without any consequential tax issues. However on the second person’s death where the assets (i.e. family cottage) get passed down to their children or grandchildren, serious tax bills can happen. And if the children don’t have the free cash to pay the tax bill, they often have to sell the asset often at a discounted price due to time constraints. i.e. a family cottage passes from one spouse to another, then on the death of the second spouse it passes to the children where a huge tax bill arises. When the children don’t have the free cash to pay the tax bill at that time, they’re forced to sell the family cottage. To prevent this, and keep the cottage in the family, a joint second to die life insurance policy works well. In the event of the second insured person’s death, the cottage passes to the kids, but they receive the life insurance benefit (since the second person has now passed). They use this money to pay the taxes on the cottage that are now due, and the cottage stays in the family.

The other use for a second to die policy is transferring money from grandparents to grandchildren. You can place the grandparent and grandchild on a joint second to die policy, assuming that the grandparent will pass away first. The grandparent places money into the policy (investments are part of this strategy) where the money grows at a tax sheltered rate. Upon the death of the grandparent, often the policy ownership passes to the parent (if the child is still young) but the funds inside the policy are now accessible to the grandchild. They can remove these funds and pay taxes at their tax rate – which is assumed to be much less than the grandparents when they were alive. In this strategy, the grandparents have passed money down to their grandchildren in a tax preferred way (so, more money), provided them with a policy, and given them money for such things as buying their first house, school, etc. 

Generally second to die policies are not advised for many families without tax or estate planning concerns. The primary use that would make sense in this case would be ‘estate creation’ where you and your spouse want to leave money to your children or grandchildren even if you don’t have an estate left. By purchasing a second to die life insurance policy, you’re guaranteeing an estate – the value of the life insurance proceeds – when the second of you pass away. Sometimes this is a rational financial decision, but sometimes it’s strictly an emotional decision.