What Is A Survivorship Life Insurance Policy?

What Is A Survivorship Life Insurance Policy? What are the benefits of survivorship life insurance? Are there downsides to survivorship life insurance? Who Should Have Survivorship Life Insurance?

What Is A Survivorship Life Insurance Policy?

With survivorship life insurance, you get a policy that covers you and your spouse. However, the policy won’t pay out until both of you pass away. While there are different types of policies within this category, many of them are variable life insurance policies, which means they have an investment component attached. In this case, part of your premium will go to your guaranteed death benefit, and the remainder will go towards the cash value, which is invested.

Your insurance company gives you a few different insurance options to choose from, depending on your risk tolerance. The cash value of your benefit will then grow based on the performance of your investment. While most of these policies do not allow you to adjust premiums and benefits, there are some that are universal policies, which will provide you with some flexibility to change your premiums and benefits if you would like.

What are the benefits of survivorship life insurance?

There are many benefits to using survivorship life insurance. One of the biggest reasons many couples choose this option over getting their own individual policies is because the total cost is cheaper.

Insurance companies also charge lower premiums for this type of insurance because their risk is relatively low. It will likely be decades before they have to pay out, so factors like health risks feel less pressing. You still may have to undergo a health examination, but the results will have less of an effect on your premiums overall. If you both wanted to take out policies anyway, it’s a good way to save money. You also know that you will be covered for your entire lifetime, unlike a term life insurance policy, which requires renewal. If one member of the couple has a difficult time getting affordable life insurance on their own, opting for survivorship life insurance should make the process easier.

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Many people also use these types of life insurance policies specifically to build an estate for their heirs. If your main concern when buying life insurance is your children, this type of policy is likely going to make the most sense for you. The investment component of the survivorship policy can be used to augment any existing wealth that you have saved up. The death benefit can then be used to pay off estate taxes when your assets transfer to your children or other beneficiaries. Even if you aren’t worried about estate taxes, you can still use the survivorship life insurance to pay for an heir’s education, medical care, or housing costs, particularly if they are special needs.

Finally, depending on the type of policy you have, the cash value can be helpful for the surviving family member. For example, if they can’t afford to pay the premiums after your death, they can usually dip into the cash value of the policy to make the payments. In some cases, you can also withdraw the money for other purposes, which can provide some additional financial support.

With survivorship life insurance, you get a policy that covers you and your spouse. However, the policy won’t pay out until both of you pass away. While there are different types of policies within this category, many of them are variable life insurance policies, which means they have an investment component attached. In this case, part of your premium will go to your guaranteed death benefit, and the remainder will go towards the cash value, which is invested. Your insurance company gives you a few different insurance options to choose from, depending on your risk tolerance. The cash value of your benefit will then grow based on the performance of your investment. While most of these policies do not allow you to adjust premiums and benefits, there are some that are universal policies, which will provide you with some flexibility to change your premiums and benefits if you would like.

What are the benefits of survivorship life insurance?

There are many benefits to using survivorship life insurance. One of the biggest reasons many couples choose this option over getting their own individual policies is because the total cost is cheaper.

Insurance companies also charge lower premiums for this type of insurance because their risk is relatively low. It will likely be decades before they have to pay out, so factors like health risks feel less pressing. You still may have to undergo a health examination, but the results will have less of an effect on your premiums overall. If you both wanted to take out policies anyway, it’s a good way to save money. You also know that you will be covered for your entire lifetime, unlike a term life insurance policy, which requires renewal. If one member of the couple has a difficult time getting affordable life insurance on their own, opting for survivorship life insurance should make the process easier.

Many people also use these types of life insurance policies specifically to build an estate for their heirs. If your main concern when buying life insurance is your children, this type of policy is likely going to make the most sense for you. The investment component of the survivorship policy can be used to augment any existing wealth that you have saved up. The death benefit can then be used to pay off estate taxes when your assets transfer to your children or other beneficiaries. Even if you aren’t worried about estate taxes, you can still use the survivorship life insurance to pay for an heir’s education, medical care, or housing costs, particularly if they are special needs.

Finally, depending on the type of policy you have, the cash value can be helpful for the surviving family member. For example, if they can’t afford to pay the premiums after your death, they can usually dip into the cash value of the policy to make the payments. In some cases, you can also withdraw the money for other purposes, which can provide some additional financial support.

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Who Should Have Survivorship Life Insurance?

What Is A Survivorship Life Insurance Policy?

The goal of life insurance is to protect those who will need financial support after you pass away. Couples often buy two separate policies, but there’s another option called survivorship life insurance.

Survivorship life insurance, also called joint life insurance or second-to-die life insurance, covers two people under one policy. It pays out a death benefit only when both have died.

“Historically, survivorship life insurance has been an estate planning tool used by affluent couples looking to dampen future tax liabilities for their heirs,” says Dustin Giannangelo, CEO of Fusion Wealth Management in Phoenix. “However, it could be a useful strategy for many different types of families, not just the wealthy.”

Since a survivorship life insurance policy combines two individuals on one life policy, you can typically get a much more significant death benefit at a lower cost than by buying two individual life insurance policies, he says. As with other life insurance policies, the death benefit is paid tax-free to your beneficiaries.

Is Survivorship Life Insurance Right For You?

When it comes to estate planning, survivorship life insurance can be a valuable tool for some families. Giannangelo suggests that couples shopping for life insurance consider these questions:

  • When you die, will your heirs have to pay estate taxes?
  • If you own a family business, do you know how you’ll leave ownership interest to your kids who are involved and children who aren’t?
  • Do you have a special needs child who will need lifelong financial support?
  • Are you looking to leave a legacy behind for your family or a charity?

Survivorship life insurance can be a solution to these situations.

1: When estate taxes are a problem for one of your clients, a survivorship life policy could be a crucial strategy to create liquid monies to help minimize the impact of estate taxes to their heirs.

Estate taxes can wallop your family after the death of the last surviving spouse. The tax is applied to any assets that exceed the federal estate tax exemption amount:  For 2020,that’s  $11.58 million per individual or $23.16 million for a married couple.

Paying an estate tax will mean a significant loss of wealth to heirs. The life insurance policy can provide those funds, so your family doesn’t have to sell off assets to pay estate taxes.

2: Tax laws are constantly changing, so it’s essential to speak with your tax and legal team,

For parents of a special needs child, a survivorship life insurance policy can fund a trust that will provide financial security throughout the child’s life.

3: It’s imperative you enlist the services of an attorney that specializes in Special Needs Trusts to make sure you safeguard the child’s eligibility for Medicaid and other government programs.

How Is Survivorship Life Insurance Priced?

Survivorship life insurance policies can provide cost-savings over buying two separate policies because the risk for the insurer is lower. There’s only one payout.

And the underwriting processes could be a bit less stringent.  The underwriter will usually focus on the younger and/or healthier of the two applying for the policy, because that person will likely be the “second to die.”

“Generally price is determined by an insurance company’s perception as to how long the last surviving person will live. Ideally, both insureds are in good health, but even if one party would be considered uninsurable for individual insurance, we’ve seen that adding this person to a second-to-die policy will increase the overall benefit to the couple. Statistically, it is possible that an uninsurable person may enjoy a lengthy life and this is priced into a second-to-die policy.

If you’re considering a survivorship life insurance policy, make sure you’re working with a financial advisor who can help you fit the right life insurance into your overall financial plan.

Chibuzor Okechukwu

Chibuzor Okechukwu has been a writer for many years and has spent most of his career researching and writing for the personal finance industry. He also write the guidelines to login to various websites and online platforms.

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