Is your life insurance policy still serving its purpose? – Joint last-to-die life insurance

0
82

BY: ANDREW STEWART 

A life insurance policy is an important investment for consumers. We’re diligent about choosing a policy that seems to best meet our family’s needs and then we reliably make those required premium payments on time so we can keep the policy in-force as the years go by.

Unfortunately, too many of us tend to just stuff the policy in a drawer and forget about it. We don’t evaluate them through the same lenses we do when considering other securing other assets in our lifetime. Pause for a moment and revisit the original reason why you purchased your life insurance policy in the first place. If you’re like most of us, chances are that the appeal of buying a policy was due to one of these factors:

  • To provide an inheritance for your surviving spouse and/or children
  • To protect your family from debts that would need to be paid
  • To help fund educational expenses for your children or grandchildren;
  • To pay for your funeral expenses so your family wouldn’t need to front the costs
  • To leave behind a charitable legacy that your family could carry out

If you have already purchased life insurance or thinking its time that you get some coverage, today’s article is about Joint Last to Die Life Insurance and why it might be an option for you. 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.

Many estate planning goals do not require a benefit to be paid on each death. Instead, the goals can be achieved by having a single death benefit paid on the last survivor’s death. Joint last-to-die life insurance is an effective and relatively inexpensive life insurance policy that covers two people but only pays on the last survivor’s death.

Income Tax Act rules allow a deceased spouse to pass their assets on to their spouse on a tax-free rollover basis. The tax liability is then deferred until the surviving spouse also passes away. At this point, all the property under the surviving spouse’s name is deemed to be disposed of at the fair market value, triggering a capital gain. Assets that may have accumulated a large capital gain include investments such as stocks, bonds, mutual funds, the family cottage and shares of a small business.

What all this means is that assets you and your spouse have accumulated over the years could now have a large capital gain value. Half of the gain is taxable and will be added to income in the year of death. In addition to capital gains, the full value of the RRSP/RRIF will also be treated as income in the year of death if there are no qualified beneficiaries to receive the proceeds.

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 policy can also be used to create a legacy. If you do not have a sizeable estate but would still like to leave some money to your children and grandchildren, a joint last-to-die policy is a cost-effective method of doing so. This includes using life insurance for charitable donations, which creates a tax credit that can be used to offset any tax liability.

How is it cheaper?

In order to do a complete analysis of the usefulness of a joint last-to-die policy, a premium comparison must be made between it and two individual policies. After all, it wouldn’t make sense to purchase a joint last-to-die policy if two individual policies can pay twice and have a lower premium. 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.

LEAVE A REPLY

Please enter your comment!
Please enter your name here