Joint Life (First-To-Die) Insurance

1. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • What is it? • First-to-die coverage on two or more insured’s • Offered on base policies of permanent or term insurance, or additional-insured riders (AIR’s) to single life policies • When is the use of this tool indicated? • In the dual income family market • May provide a more cost effective means of replacing income at the first spouse’s death • Key employee business insurance market • Cost of a multi-life policy on several key persons will be less than the total cost of separate policies on all insured’s • Some companies offer a substitute insured rider that permits the owner to replace one insured with another (subject to evidence of insurability

2. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • When is the use of this tool indicated? (cont'd) • Business buy-sell planning • Advantages • Family market - more cost effective match with insurance needs • Business market – Eliminate need for redundant coverage • Disadvantages • All coverage's cease upon the first death • Cost of a JL policy is greater than the cost of a single life policy with the same face amount. • Because the expected time until the first death of two insured’s is less than the expected time to the death of either insured separately.

3. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • Tax implications • General income taxation • JL is taxed in the same manner as other life insurance for income tax purposes • Income taxation of split dollar arrangements • Economic benefit based upon the cost of the pure insurance element of the policy • Cost is generally based upon the lessor of Table 2001 rates or the term insurance rates actually used by the insurance company. • In theory the economic benefit should be measured using joint life term rates • Matter is unresolved at this time

4. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • Tax implications (cont'd) • Corporate owned life insurance • JL is owned by corporations and used for business purposes • Key person insurance • Buy-sell stock redemption plans • The corporate alternative minimum tax may be a consideration in it’s use • Estate inclusion when policy owned by a corporation • If key employee / controlling stockholder and corporation has complete control over policy or at lease the right to borrow against the policy • Employee/stockholder will be treated as having sufficient incidents of ownership for the policy to be included in his/her estate

5. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • Alternatives • Separate single life policies on each insured • If the need for insurance . . . • Terminates at the first death • JL is a more cost effective method of insuring the risk • Continues after the first death • Separate policies on each insured or a combination of JL and survivorship insurance might be a better alternative • On the survivors is uncertain • JL with guaranteed insurability options that provides a “wait and see” flexibility

6. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • What fees or other acquisition costs are involved? • JL come in a number of forms • Annual renewable term • Level term • Ordinary life • Current assumption life • Universal life • As additional insured rider to single life policies

7. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • What fees or other acquisition costs are involved? (cont'd) • Expenses • Similar to those of comparable single life policies • Issue expenses will be proportionately higher than for single life policies • How do I select the best policy of its type? • Financial strength of the insurer • The policy with the best combination of features desired at the lowest cost • Options to consider • Substitute-insured option • Guaranteed-purchase riders

8. Joint Life (First-To-Die) Insurance Chapter 11 Tools & Techniques of Life Insurance Planning • How do I select the best policy of its type? • Options to consider (cont'd) • Joint premium waiver • Split option • Graded premium plans • Common disaster clause