When is joint last-to-die life insurance the right choice?
When couples consider life insurance, they often think of individual term policies. For long-term estate planning and tax minimization, this lesser-known policy effectively safeguards your family’s financial legacy, extending beyond just income protection.
Joint last-to-die life insurance helps couples in Canada ensure their beneficiaries receive the maximum payout when both partners pass away. This policy helps eliminate the burden of taxes, probate fees, and financial uncertainty for the family. It’s not merely about protecting your income today; it’s about securing what you leave behind for the future.
So grab a cuppa coffee, while we explain the advantages and disadvantages of joint last-to-die life insurance and provide guidance on getting started with TermCanada.
What Is Joint Last-to-Die Life Insurance?
Joint last-to-die life insurance, also known as second-to-die insurance, is a permanent policy that covers two individuals, typically a married or common-law couple. Unlike first-to-die policies that pay out upon the death of the first person, this policy pays out only after both individuals have passed away. Joint last-to-die insurance is designed with long-term legacy goals in mind. The death benefit is often used to cover capital gains taxes, settle estate debts, or transfer wealth to children or heirs without incurring taxes.
It’s especially valuable for estate planning. In Canada, most assets are transferred to a surviving spouse on a tax-deferred basis. The significant tax burden usually arises when the second spouse passes away, which is where the joint last-to-die policy offers essential financial support.
Finally, when a financial goal is to leave money to children, there has to be some mention of life insurance. Have you ever checked the price of a joint last-to-die policy? Using insurance is one way to make sure your loved ones will receive a specific amount.
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Why Choose Last-to-Die Coverage?
The primary advantage of a joint last-to-die policy is its cost efficiency. Since the benefit is paid out only after both individuals pass away, the premiums are typically lower than if you purchase two separate permanent policies. It’s commonly used to address estate-related issues, so it doesn’t need to be a hefty face value; it only needs to be strategically planned.
Many Canadian couples use this type of life insurance to cover:
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Capital gains taxes on vacation properties, investment accounts, or RRSPs
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Business succession planning
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Charitable giving after death
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Equalizing inheritances between children or blended families
It’s also commonly used by high-net-worth individuals who expect their estate to trigger significant tax liabilities. But it’s not just for the wealthy, any couple who wants to leave something behind without leaving their family a financial mess benefits.
How Does It Work in Practice?
Imagine you and your spouse purchase a joint last-to-die life insurance policy with a benefit of $500,000. As long as you continue to pay the premiums, the policy remains valid for both of your lifetimes. When the first partner passes away, no benefit is paid out. However, when the surviving partner passes away, the named beneficiaries receive the $500,000 death benefit.
The proceeds can be used to pay off any final taxes, cover probate costs, or be distributed according to your will. It ensures your estate won’t need to sell off assets, such as a cottage or a family business, to settle tax obligations.
In Canada, most joint last-to-die policies are permanent life insurance policies, meaning that the coverage does not expire and the premiums are typically fixed for the policyholder’s lifetime.
Who Is It Best Suited For?
Joint last-to-die life insurance is not for everyone, but it’s ideal for:
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Couples who don’t need immediate income protection
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People with sizable RRSPs, real estate, or investment gains
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Families with cottages or secondary homes that will trigger capital gains
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Parents of children with disabilities who want to ensure financial continuity
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Charitable donors planning a legacy gift
Suppose you’re nearing or already in retirement and want to make sure your family receives the full value of your estate. In that case, this type of policy is often more affordable and effective than traditional life insurance options.
Is Joint First to Die Coverage Only for Older Couples?
Joint last-to-die insurance policies are typically purchased by individuals in their 50s, 60s, or 70s. However, they can also be established earlier in life, especially if you are planning for long-term wealth transfer. The younger you are when you buy the policy, the lower the premiums, and you also have more time to accumulate tax-sheltered value within it.
In some cases, individuals in their 40s with growing estates and businesses opt for joint last-to-die policies as part of their overall financial planning strategy.
What About Tax Benefits?
This is where things get interesting.
In Canada, when a person dies, their assets are “deemed disposed of.” Their assets are essentially treated as if they were sold, which can lead to significant tax liabilities.
While these liabilities can be deferred when assets are transferred to a surviving spouse, they must be settled upon the death of the second spouse. A joint last-to-die insurance policy provides a tax-free payout at precisely the moment your estate needs it most. The death benefit helps protect assets from being diminished by final tax bills and ensures a smooth transfer of wealth to your heirs.
For many Canadian families, this distinction determines whether they pass on a fully intact estate or are forced to sell valuable assets to cover tax debts.
What Are the Downsides?
Joint last-to-die life insurance, like any financial product, has its limitations. The most significant drawback is that there is no payout after the first death. So, it won’t provide financial assistance to the surviving spouse for funeral expenses or loss of income.
Additionally, because it is a permanent policy, it can be more expensive than term insurance. However, it is often more affordable than purchasing two separate individual policies.
Another essential factor to consider is the policy’s ownership structure. It is crucial to ensure that the policy is implemented correctly and the beneficiary designations are kept up to date. Working with a licensed advisor, such as the team at TermCanada, can help you avoid costly mistakes.
How Do You Apply?
Applying for joint last-to-die insurance in Canada is similar to applying for a standard permanent life insurance policy. The primary difference is that both applicants must undergo the underwriting process. This typically involves completing a health questionnaire, undergoing medical examinations, and a financial assessment.
However, simplified options are available based on policy size and the ages of the applicants. These options expedite the approval process, minimizing paperwork, making it easier to obtain coverage.
To begin, request a quote through TermCanada. We assist in exploring the available options.
Final Thoughts: A Smarter Way to Protect Your Legacy
When planning your estate, consider how to maximize the benefits your family receives. A joint last-to-die life insurance policy helps you take control of that outcome.
Whether preserving a family cottage, protecting your investments, or ensuring taxes do not become a burden for your children, this type of insurance is a game-changer.
At TermCanada, we specialize in simplifying the complexities of insurance. If you’re interested in how joint last-to-die insurance fits into your estate plan, we are here to help, no pressure, no jargon, just straightforward answers.
Get started today! Request your free personalized quote from TermCanada and secure the future you’ve worked hard to build.
