Joint-Life Payout

What Is a Joint-Life Payout?

The term joint-life payout refers to a payment structure for pensions and retirement plans in which a surviving spouse will continue to receive income after the account holder dies. That contrasts with a single-life payout, for which payments end with the death of the account holder. These two payout options are also known as joint-and-survivor and single-life annuities.

How Joint-Life Payouts Work

With a joint-life payout, a pension or other retirement plan will first pay benefits to the account holder and then switch to their spouse if the spouse survives them. Because the pension is likely to have to pay benefits for a longer period of time, the benefits will be lower than the account holder would have received had they elected for a single-life payout.

However, the account holder has the assurance that their spouse will still have money coming in after they die. In some instances, the designated survivor can be someone other than a spouse.

In many cases, the joint-life option is the legally required default for married account holders, and they can elect the single-life option only if their spouse agrees to that in writing. A spouse might agree, for example, if they have sufficient retirement income of their own.

Account holders and their spouses will often have several joint-life options to choose from. For example, they may be able to elect a payout to the survivor that's the same amount as the account holder had been receiving or, more commonly, a payout that represents 50% or 75% of that amount. The option they choose will also affect the account holder's payout—the larger the spouse's future payout, the lower the account holder's payout will be.

What Is Joint Life Insurance?

Joint-life payouts on retirement plans shouldn't be confused with joint life insurance. A relatively uncommon type of insurance policy, joint life insurance covers two people, typically a married couple, rather than one.

These policies can be structured in several ways. A first-to-die policy pays off when either person dies. That might be useful in the case of a young family, in which one person works outside the home and the other is a stay-at-home parent. If one or the other of them dies, the family could face financial hardship, either because it no longer has money coming in from the working spouse or because the survivor must now pay someone to do the work previously done by the stay-at-home partner. However, two separate, individual policies could serve the same purpose as a joint policy.

The other type of joint life insurance is second-to-die, which pays a death benefit to the policy's beneficiaries when both policyholders are dead.

Though joint life policies may be less expensive than two individual policies, they also come with additional risks, including what happens if the couple decides to divorce.