First-to-die Policy

A first-to-die policy pays the death benefit when the first of two insureds dies. It is sized to replace the deceased’s income contribution to the household and, for partnership and small business contexts, to fund a buy-sell agreement (chapter “The Business Owner’s Tax Architecture” covers the buy-sell case). Cheaper than running two single-life term policies of equal size; less flexible because the survivor loses coverage at the first death and has to re-underwrite at the older age. For most family situations, two separately underwritten term policies in matching amounts are the cleaner default; first-to-die is the right answer when the coverage exists to fund a specific joint obligation that disappears with either death.