Why is joint life last survivor guaranteed whole of life cover cheaper than joint life first death cover?

• A. A lower government insurance levy applies to joint life last survivor policies
• B. Exit tax does not apply to joint life last survivor policies
• C. The cover under the joint life last survivor policy reduces after the first death
• D. It will likely take longer for the cover to be paid out

Answer: (D)

Joint life last survivor guaranteed whole of life cover is typically cheaper than joint life first death cover primarily because of the payout timing associated with the policies. In a joint life first death policy, the insurance company must be prepared to make a payout upon the death of the first insured, which could happen at any time. This means the risk of claims is higher for the insurer and consequently, the premiums are set at a higher rate to accommodate this immediate obligation.

In contrast, with a joint life last survivor policy, the payout only occurs after the death of the last insured individual. This inherently prolongs the time the insurer retains the premiums, as they may never have to pay out if both insured individuals live to old age. Statistically, it is more likely that the last survivor will live a longer life, which results in lower risks of immediate claims. Therefore, because of the delayed timeline before any payouts are made, the premiums for these policies can be significantly lower. This longer duration until a claim is made allows for a more favorable risk assessment for insurers, resulting in lower insurance costs for policyholders.