The Use of a Joint-Life Policy Compared with the Use of Separate Policies on the Same Lives

Joint-life policies may be taken by husband and wife in favor of each other or for the protection of their children. Should the husband die first, his wife and children will be properly provided for, while if the wife dies first the proceeds of the policy will also prove a substantial help to the family. Again, such policies may appeal to husband and wife who are receiving a joint income. The most frequent use of such policies, however, is for the protection of a firm against the death of one of its partners. For this reason joint-life insurance is frequently referred to as "partnership insurance", although that term, it should be noted, has a broader meaning since it may also refer to the insurance of the several partners under separate policies for the benefit of the firm. Either plan, it is clear, serves as a means of protecting the business against the withdrawal of capital and the loss of valuable experience that usually results from the death of a partner, of strengthening the credit of the firm at a time when lack of capital is most likely to prove disastrous, and of making possible the retention of the control and management of the business by the surviving partner or partners.

Where the firm consists of only two partners the joint-life policy may appeal as a means of protecting one partner against the death of the other, especially since the premium is lower than the sum of the two premiums required if both insured themselves under separate policies for the benefit of the other. The general tendency, however, seems to be towards the use of individual policies rather than joint-life contracts. This is especially true where the partnership consists of more than two partners, because under such circumstances there is a much greater possibility of some one of the members desiring to withdraw from the firm, thus frequently necessitating an intricate settlement as regards the joint-life policy. Such complications, it is argued, can best be avoided by issuing individual policies on the lives of the members of a firm at the regular rates. Under this plan the death of any partner will cause his insurance to be paid to the firm, the other policies continuing in force as before for the benefit of the business. But in the event of the dissolution of the partnership, or in case the need for insurance ends, the policy may either be surrendered for its cash value, or be transferred, upon the payment of a proper consideration, to the insured who may then continue it as his own insurance for the protection of his family or estate.