Joint Last-to-Die Life insurance: How Does it Work?

Posted on November 1, 2016 and updated December 4, 2018 in Insurance Types, Life Insurance Canada News, Permanent Insurance 6 min read
joint last to die life insurance

Joint Last-to-Die Life Insurance pays out a tax-free benefit to the policy owner’s beneficiary on the passing of the second spouse on the policy.

Joint Last-to-Die policies are significantly less expensive when compared to individual single-life policies because the insurance company does not plan to pay out the money until much further in the future. Plus, the company only has to pay out once for two people.

These types of policies are generally designed to offset future tax liabilities. These liabilities could be in any form from capital gains as the result of investment properties to business investments, or it could be in the form of other taxes related to an RRSP or RRIF.

Many people also use Joint Last-to-Die coverage to create an estate fund that can be used for a charity, a scholarship or a financial legacy. These policies are usually permanent, which means the plans stay with the couple. A couple can buy this type of coverage in a limited number of years, such as 10, 15, or 20.

Get the most out of joint last-to-die life insurance.

Joint last-to-die coverage is a vital component in your estate planning. Foremost, it can be used to pay any outstanding taxes on the business. Most business owners keep all of their bills up-to-date, especially taxes, however an unexpected death can leave the business financially strapped.

All the property owned by the deceased can be passed on to the joint member of the policy tax-free. The tax liability for capital gains is then deferred until the death of the surviving. At this time, all of the property owned under the name of the surviving spouse is considered disposed of at current market values, and susceptible to capital gains.

What all this means is that assets you and your spouse have accumulated over the years could now have a large capital gain value. Investments such as bonds, mutual funds, stocks and the family cottage, plus any business shares you may own, could all be taxable now and the value of each will be added to the total income of the deceased.

Half of this income is taxable and will be added to your income in your final taxation year. In addition to funds deemed as capital gains, RRSP income is also be counted as income if there aren’t any qualified beneficiaries to claim the funds.

Avoid having all your assets become taxable at the same time.

Having all of this income become taxable at once can be quite a burden on your beneficiaries. The total taxes due could result in a sizable tax bill, leaving your beneficiaries with nothing or worse, taxes due. You can design your joint last-to-die policy to match the tax liability. This is the perfect solution to such a complicated situation because the funds are available when needed.

Create a Legacy

A joint last-to-die insurance policy can also be used to create a legacy. When you have spent your entire life working hard and building up a sizable estate, you may want to let that tradition grow. You may have children or grandchildren that you would like to leave some money. With this type of policy, you can do just that. You can also leave insurance benefits to your favourite charity or any other person of your choice. As the sole survivor of the policy, the beneficiary is your choice. A charitable donation creates a nice little tax credit that you can use to offset any tax liabilities.

You can also use a joint last-to-die life insurance policy to employ an annuity strategy. This will enhance your retirement income and still leave a nice inheritance for your beneficiaries.

How Much Does it Cost?

Obviously, many factors determine the cost of any insurance policy. In order to decide whether a joint last-to-die policy is right for you, you should do a premium comparison.

First off, you only have one policy which means only one premium to pay each month. On average, this can save you several hundreds of dollars each month. To determine the cost of a joint last-to-die policy, underwriters must take into consideration the ages of the people involved. This is determined by a combined age factor. For example, by combining the ages a 65 year old couple could be determined to have the single age equivalent of a 58 year old, non-smoking male.

The cost for a joint last-to-die policy for this couple could be about the same as an equivalent policy for a 58 year old man. The way age equivalents are determined varies, so it’s important to shop around to get the best deal possible.

You can choose a level cost of insurance universal life policy with a face value of $100 000 for much less than two individual policies with lower faces values. This is because the benefits are only paid after both members of the policy have passed away.

If you want to receive benefits sooner, you can choose a shorter paying period. There are some policies that pay out upon the first death. The thing to remember with this type of policy is that the premiums may be higher to make up for the shorter paying period.

Deciding what type of life insurance plan to use can be difficult and depends largely on the future goals you have for your estate. Using a joint last-to-die life insurance policy can help accomplish these goals. It’s easy to see how this type of insurance can be a much better choice than two separate policies, especially when you consider the huge savings on premiums.

For more details on Joint Last-to-Die Life Insurance Coverage, please contact us at 1-866-899-4849 or visit our Whole Life Insurance Quote Page.

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Y Lewis
Y Lewis

Can a last die life ins. policy have premiums stop after the first death

Aman Kapur
Aman Kapur

Very good article!
JLTD policies are very beneficial when it come to estate planning. It prevents taxation and preserves the assets for the next generation. Your heirs get truly what you have left for them!!