Survivorship Life Insurance
Survivorship life insurance—also known as "second to die" life insurance—is a type of permanent life insurance protection in which two lives (usually spouses) are insured under one policy. Under this type of policy, the death benefit is paid out upon the death of the second insured. Survivorship life insurance can take the form of whole life, variable life, or variable universal life policies, and are primarily for estate planning purposes.
Uses of Survivorship Life Insurance
Survivorship life policies are attractive for many reasons:
- Survivorship life ensures loved ones are provided for. If one spouse dies, the other spouse is still able to provide for the family. If both spouses die, a survivorship life policy helps ensure funds are available for their family's care. Survivorship life is especially helpful for families who have children with special needs or disabilities.
- Survivorship life is designed to pay or help pay for estate taxes. Estate taxes can be delayed until both spouses die. But your loved ones may eventually be faced with a large estate tax bill. The death benefit from a survivorship life policy will provide funds to cover these costs, which means inheritances are not eroded by estate or income taxes.
- Survivorship life helps ensure valuable family assets remain in your family's control. Estate taxes and other costs associated with dying may be high. Thus, a survivorship life policy may be particularly attractive when major family assets are not liquid or may not want to be sold (for example, a family business) to help cover costs.
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Advantages of a Survivorship Life Policy
Because two lives are insured under one policy, there is no need to worry about who will die first. The policy will remain in effect after the first spouse dies, as long as premiums are paid. In addition, premiums for a survivorship life policy are generally lower than for two individual policies. For example, a $1 million survivorship life policy will cost less than a $1 million policy for one person or one $500,000 for each spouse.
Survivorship life policies may be the best alternative for couples when one spouse may not be in good health and all other types of insurance are extremely expensive, or when one spouse has been denied individual coverage. Underwriting for a survivorship life policy is typically more lenient, as two lives are insured, and the death benefit is paid upon the death of the second insured. However, not every person denied individual coverage is eligible for coverage under a survivorship life policy.
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