United States
Hong KongJoint life and survivorship life: which death pays
Joint life covers two people and pays on the first death. Survivorship life covers two people and pays on the second. Pearson's outline labels them first to die and second to die, so the answer is handed to you, and the pair still gets inverted because survivorship sounds like it should pay the survivor.
The outline writes first to die and second to die in brackets beside these two products. That is Pearson removing the ambiguity for you, and it is still one of the more commonly missed pairs in section I. The reason is linguistic, not conceptual.
Why the names mislead
Survivorship suggests a payment to the survivor. It does not mean that. It means the policy waits until nobody has survived, then pays. The name describes when the insurer stops waiting, not who receives the money. Once you have said that to yourself twice it stops being confusing.
| Joint life | Survivorship life | |
|---|---|---|
| Also called | First to die | Second to die |
| Pays when | The first insured dies | The second insured dies |
| Who is left covered | Nobody, the policy has paid | Nobody, the policy has paid |
| Cost against two single policies | Lower | Lowest |
| Classic use | Replacing income or clearing a joint debt | Funding estate tax at the second death |
Why survivorship life is the cheapest of the three
Premium follows probability. An insurer paying on the second death of two people is paying later than an insurer paying on the first death, and later than an insurer covering either life alone. Later means longer to hold the money and a higher chance the contract lapses first. So a second to die policy costs less than a first to die policy for the same face amount, which costs less than two individual policies.
That ranking is examinable in its own right and it is derivable rather than memorizable. Ask when the insurer has to pay.
The estate planning use, briefly
Survivorship life exists mainly to fund a liability that arises at the second death, most often an estate tax bill on the death of the surviving spouse. That is why it appears in the outline: the exam wants you to match a stated need to a product, and the need here has a distinctive shape. Two people, a liability that lands after both are gone, and a wish to keep the premium down.
Survivorship life underwrites two lives together, so an applicant who cannot get coverage alone can sometimes be covered under a second to die policy. A stem that mentions one spouse in poor health and a joint need is pointing at survivorship life, and that is the subtler of the two ways this product gets asked.
A married couple own a business together. If either one dies, the survivor will need cash immediately to buy out the deceased partner's share. Which product fits?
- Survivorship life, because it covers both of them
- Joint life, because the need arises at the first death
- Two individual whole life policies, because the need is separate
- A single policy on the healthier spouse
Where it sits
- Section
- I, types of policies (life), 15 questions
- Listed as
- E. Combination plans and variations, two sub-items
- Our estimate
- About one question, ours and not published
- Sister pair
- Joint life annuity against joint and survivor annuity
The annuity side of the outline runs the same trick with different words. A joint life annuity stops at the first death. A joint and survivor annuity continues while either is alive. So the word joint means until the first death in both families, and the word survivor changes the meaning in both. Learning the pairs together is faster than learning them apart, and it inoculates you against the inversion.
The opinion, and the concession
This is a one-question topic and it deserves about five minutes, which is exactly why it should not be skipped. Five minutes for a mark is the best rate on the paper, and candidates skip it because a heading called combination plans and variations sounds like a footnote. Read the outline's brackets and you are done.
The concession: our estimate of one question is arithmetic on the outline's two sub-items against the section's published 15, not a figure Pearson prints. It could be two. It is very unlikely to be none, because the outline names both products explicitly rather than folding them into a general heading.
Common questions
Does survivorship life pay when the first insured dies?
No. Survivorship life is second to die: it pays only when both insureds have died. Joint life is first to die and pays on the first death. The name survivorship describes when the insurer stops waiting, not who receives the proceeds, which is why the pair is inverted so often.
Why is survivorship life cheaper than joint life?
Because the insurer pays later. A second to die policy waits for two deaths rather than one, so the expected time to claim is longer and the premium is lower for the same face amount. Both cost less than buying two separate individual policies.
Can someone in poor health be covered by a survivorship policy?
Often yes. Because the policy underwrites two lives together and pays only after both have died, an applicant who would be declined on their own can sometimes be included. This is a distinguishing feature of second to die coverage and a plausible way for a stem to signal it.
What is a joint life annuity?
An annuity that pays while both annuitants are alive and stops at the first death, which is the opposite of a joint and survivor annuity. The word joint carries the same meaning in the annuity family as it does in the life family: the contract ends at the first death.