Survivorship life insurance is also referred to as:
Joint survivor life insuranceSecond-to-die life insuranceVariable survivorship insurance
Survivorship life insurance is often chosen when the purpose of the insurance is to leave money to the couple’s heirs, which is why it only pays the death benefit when both spouses have died.
What Kind of Policy Is Survivorship Life?
Survivorship life policies are normally permanent life policies, such as universal life policies or whole life policies.
Joint Life Insurance vs. Survivorship Life Insurance: What’s the Difference?
Joint life insurance is when an insurance policy covers multiple people on one policy. There are two options for joint life insurance:
First-to-dieSurvivorship life insurance or second-to-die
The standard option for “joint life” is often a “first-to-die” policy. In a “first-to-die” joint life insurance policy, if one of the insured spouses dies, the death benefit becomes payable to the remaining spouse as the beneficiary. The objective is to leave money behind to the spouse to help them with living expenses and to replace the lost income from the death of the first-to-die partner. Survivorship life insurance works differently. It is a joint life insurance policy and it covers both people but will only pay out when both insured people have died. This is why it may be known as “second-to-die.” The strategy in a survivorship life insurance policy is to leave behind money to the heirs of the couple, as opposed to in a joint life “first to die” life insurance policy that instead leaves the death benefit to a spouse.
Advantages of a Survivorship Life Insurance Policy
There are a few key advantages of a survivorship life insurance policy: Some people choose to purchase a survivorship life insurance policy after consulting with an estate planning attorney in order to preserve their wealth. Others may choose to purchase this kind of policy to build wealth for their heirs. In circumstances where people think they will have used up their assets and don’t have a large estate to leave to heirs, this may be a good option to leave a benefit behind to heirs. A good financial planner can help you with these decisions. Another advantage of the survivorship life insurance policy, besides leaving money to heirs after both spouses die, is that when one spouse has died, if there is cash value built up in the survivorship life policy, then the surviving spouse may be able to cash in on the cash value of the policy as needed. Finally, the cost can be a good reason to consider a joint life insurance policy. The option of a survivorship life insurance policy could save you money as opposed to having two separate life insurance policies. Especially in cases where one of the spouses has medical issues or may have trouble finding affordable life insurance.
How Survivorship Life Insurance Affects Your Estate Planning
One important estate planning aspect to a survivorship life insurance policy is that the benefit is not payable to a spouse but instead is payable to an heir. There are tax implications in this scenario. Many people use parts of a life insurance death benefit to pay federal estate taxes and other estate settlement costs. Life insurance is a good way to leave money to heirs not only because of the death benefit cash value but also because of tax advantages. An estate planning attorney and financial planner can help provide you with guidance as to the best ways to manage your estate and do the estate planning with you since every circumstance is different and you want to find the most advantageous plan for you.
Things to Consider When Purchasing Survivorship Life Insurance
When purchasing a survivorship life insurance policy, make sure to discuss these options with your financial planner:
If you would like a whole life policy vs. a variable universal life policy. These two policies have different investment/savings options that can impact cash values. Find out if your policy has the option to split the policy into two separate policies if needed. Your situation in life can change, a good insurance policy will have the ability to change with you. Some insurance policies have a rider that allows you to split the policy in certain circumstances, for example in a divorce.
