What is a joint payment?
The term cohabitation payment is a payment structure for many retirement accounts that allows the account holder to name an additional beneficiary who receives payments in the event of death – usually a spouse. This ensures that the surviving spouse still has some form of income after the death of the account holder. Many common life payments are added to investment vehicles such as annuities and insurance policies.
Key points to remember
- A joint payment is a payment structure that allows the account holder to name an additional beneficiary who receives the payments in the event of death.
- Joint life payments guarantee the surviving spouse some form of income after the death of the account holder.
- These types of payments often come with higher fees, which can reduce monthly payments.
How living payments work
Choosing a payment option is an important decision that many account holders must make for their retirement accounts. When payments are calculated by the claimant, they are based on the life expectancy of the retiree and the survivor. Some plan providers may restrict the survivor to be a direct relative of the account holder.
Living allowances provide financial security for people who depend on their spouse or those who have no income after the death of their spouse. This is because they are a guaranteed source of income. Benefits are first paid to the account holder during their lifetime. After his death, benefits are paid to the surviving spouse as long as he remains alive.
But there is a caveat: common life payments often come with higher fees, which can reduce monthly payments. Survivor benefits also tend to be much lower than those paid to retirees.
Since there are higher fees associated with living payments, they can reduce your monthly payments.
Joint life policies, on the other hand, are often inexpensive. This type of insurance can be a good budget option for a young couple who is not fully financially secure. If, however, a member of a couple obtains work life insurance, it may be more profitable and offer a larger payment for simply purchasing an individual policy for the other spouse.
When purchasing an annuity or other type of investment product that has the option of a joint payment, you may want to consider all of the important factors that can affect your payments. While it may seem simpler to have individual policies with a separate premium for each person, in some ways it tends to be more complicated.
There may be more “to do” scenarios to consider with joint life insurance policies, especially as you get older. What if both members of a couple die at the same time? Will the payment be sufficient for the maintenance of children or other dependents? Could the couple get more coverage if each had an individual life insurance policy? What if a couple separates? What happens if a surviving couple needs life insurance and cannot get it because they are too old?
The best thing to do is talk to your loved ones or your financial advisor for the best advice possible.
Lifetime payments vs. single life payments
Unless stated otherwise, most retirement account vehicles opt for a single life insurance option, also known as lifetime payments only. Payments cease when the original beneficiary dies and do not continue to be paid to the surviving spouse. Because there is no stipulation that payments continue after the death of the account holder, payments tend to be larger.
One-time payments are usually a great idea for singles, those who don’t have children, or those whose spouses don’t need extra income. But there is an important caveat about a single life payment that you don’t have to do with a common life payment: if you die soon after you start receiving your payments and have heirs, the company may not pay them all that remains of the principal balance.
Example of joint payment
Here is a hypothetical example of a joint living payment. Let’s say Mark wants to supplement his retirement income by purchasing an annuity, an investment plan that will pay him regular monthly payments. When he buys the plan, he makes sure it comes with a joint payment option. If he changes his contract to include it, his spouse may receive annuity payments after his death even if the investment is in his name.