1. 11 - 1 Joint Life (First-To-Die) Insurance  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 Chapter 11 Tools & Techniques of Life Insurance Planning

2. 11 - 2 Joint Life (First-To-Die) Insurance  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. Chapter 11 Tools & Techniques of Life Insurance Planning

3. 11 - 3 Joint Life (First-To-Die) Insurance  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 Chapter 11 Tools & Techniques of Life Insurance Planning

4. 11 - 4 Joint Life (First-To-Die) Insurance  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 Chapter 11 Tools & Techniques of Life Insurance Planning

5. 11 - 5 Joint Life (First-To-Die) Insurance  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 Chapter 11 Tools & Techniques of Life Insurance Planning

6. 11 - 6 Joint Life (First-To-Die) Insurance  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 Chapter 11 Tools & Techniques of Life Insurance Planning

7. 11 - 7 Joint Life (First-To-Die) Insurance  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 Chapter 11 Tools & Techniques of Life Insurance Planning

8. 11 - 8 Joint Life (First-To-Die) Insurance  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 Chapter 11 Tools & Techniques of Life Insurance Planning