What is Joint-Life Payout
A joint-life payout is one of two options normally available for retirees to choose as the method of payout for their employee retirement benefits. The joint-life payout option allows the retiree to receive benefits during the remainder of his/her life and guarantees income for another person after he/she has died, most often this other person is the retiree's spouse. Unless the retiree's statements explicitly states the joint-life payout, the default payout option is the single-life option.
BREAKING DOWN Joint-Life Payout
By contrast, a single-life option will pay out benefits to a retiree starting at retirement, but the payouts cease upon the retiree's death. Choosing a payout option is an important decision and several factors should be taken into consideration, such as health, anticipated life expectancy and family's financial circumstances.
When the payments are calculated by the provider, they are based on the life expectancies of both the retiree and the survivor. Because they are a guaranteed source of income, joint-life payouts help give financial security to people who are dependent on their spouse or those who have no income after their spouse dies. The benefits generally continue to be paid as long as the surviving spouse remains alive. But there is one caveat: Joint-life payouts often come with higher fees, which can lower monthly payments. Survivor benefits are also much lower than those paid out to the retiree.
How Joint-Life Payouts Work
Consider the example of Jack that buys an annuity with a joint-life payout. Ten years later, Jack retires and annuitized the contract, which means he elects to begin receiving benefits from the annuity. He receives monthly payments of, say, $1,800, which he and his wife use to support themselves in addition to Social Security.
This goes on for 20 years, and then Jack dies of a heart attack. Because the annuity has a joint-life payout, the payments do not end. Instead, Jack's wife continues receiving $1,800 a month, even though the annuity was in his name.
Joint Life vs. Single Life
Although it may seem simpler to have individual policies with a separate premium for each person, in some ways, it’s more complicated. However, there are more "what if" scenarios to consider with joint life insurance policy. What if both members of a couple die at the same time? Will the payout be enough for the upkeep of children? Could the couple get more coverage if each had an individual life insurance policy? What if a couple separates? What if the surviving member of a couple needs life insurance coverage and can’t get it because he or she is too old?
One advantage of joint life insurance policies is the low cost. Joint life insurance can be a good budget option for a young couple that hasn’t yet hit the big time financially. If, however, one member of a couple gets life insurance through work, it may be more cost-effective and provide a bigger payout to simply buy an individual policy for the other spouse.