Survivorship Life Insurance
Survivorship Life Policy Basics
Choosing the right life insurance policy can present challenges for individuals, couples and business owners. When a protection need exists upon the death of a partner, not an individual, survivorship life insurance may present the best financial solution.
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With survivorship life insurance, benefits are paid when the second person of the insured party passes. Because the insurance company only needs to issue one payment for two persons, the costs of the premiums are lower.
Instead of having two separate life insurance policies, the partners can have a single survivorship policy. When the first partner dies, there are no benefits paid out of this policy. Upon the death of the second person, estate tax penalties would be assessed to the estate. And, the death benefit proceeds from survivorship life insurance could be sufficient to cover these costs.
Survivorship life insurance is a form of a variable life insurance policy. There are various investment choices that can be utilized for the cash accumulating, including securities, money market accounts, or stocks. Normally these investment choices provide very reliable, steady returns with very little volatility that can be found in regular stock market trading. Survivorship insurance policies do provide a great deal of flexibility for the buyer so that there is a lot of control over what type of investment funds to use for the specific policy.
Some examples of funds that can be offered as part of a survivorship life insurance policy can be:
- Diversified Equity Income Funds
- Large Cap Growth Portfolios
- Value Funds
- S&P 500 Index Funds
- Mutual Shares Securities Funds
- Dividend Growth Funds
- Balanced Funds
- Global Bond Funds
- Cash Management Funds
Typically the buyers of survivorship insurance policies are already savvy investors who know the risks and rewards of many different investments, so the insurance companies take great care to make sure the funds available to choose from are among the best available.
With some insurance companies, the option to purchase a Universal Life plan with a survivorship/second to die clause may be available. This type of plan would not have any investment choices, and the cash value’s growth would be determined in its entirety by the insurance company.
Premium Payment Options
While most policy owners will pay their survivorship life premiums on a monthly or annual basis, some would prefer a single-premium option. Single premium payments are attractive to individuals who would prefer not to have an ongoing life insurance premium payment.
Also the amount of the premiums can be flexible, if the buyer chooses to pay the monthly amount. Each year the buyer has the choice of changing the premium depending on the cash value and the payout. The adjustment can be an increase or a decrease depending on the discretion of the buyer.
Features and Benefits of Survivorship Life Policies
One benefit of a survivorship life insurance policy is the couple can be insured even if one is not in the best of health. Most insurance providers look at both individuals as one, since the payout will only occur once. This gives added relief for persons who may have been turned down for other types of life insurance policies.
Insurance providers can structure a survivorship/second-to-die life insurance policy that meets the needs of almost any couple. These policies include a variety of choices and features including:
- Option to use universal life, variable universal life, or indexed universal life policies
- Flexible death benefits
- Flexible premiums
- Tax deferred accumulation of the insurance policy cash value
- Single-pay premium options
Basic Policy Benefits include:
- One comprehensive policy to cover all estate taxes
- Reduced premiums when compared to two separate life insurance policies
- Investment options and cash value opportunities
- Tax deferment when first spouse passes
Policy Risks include:
- Changes needed in the event of divorce
- Potential of loss of estate or income before second spouse passes
- Policy coverage of all applicable estate taxes
In all of these cases, the couple should speak with their preferred life insurance provider to determine what type of plan would be best for their finances and for their estate planning. It is also a good idea to look at three or four different insurance providers and compare the features of each of their survivorship/second-to-die policies. By comparing several insurance program options, the couple can be better informed and make an intelligent choice for their financial future and their estate’s future.
Many wealthy couples have worked their entire lives to accumulate enough for a comfortable estate and something worthwhile to pass along to their heirs. It is important for these couples to have a way to manage the inevitable estate taxes without burdening the loved ones who are left to deal with the planning and arrangements. With the added benefit of a second-to-die or survivorship life insurance plan, the couple can be assured that their earnings can be passed along and the estate taxes can be taken care of through the insurance policy instead of from the estate assets.
Life insurance comes in a variety of forms – from whole life to term life and all of the options in between. Life insurance can be a difficult area to discuss with loved ones. With all of the choices available, it can often become difficult to determine what choice is best for any couple’s financial situation. Consulting with a knowledgeable insurance provider and a trusted estate planner can help you to decide if a survivorship/second-to-die life insurance policy is appropriate for your estate planning needs. There are many benefits to utilizing a survivorship/second-to-die life insurance plan, and ultimately the decision will be up to the couple on how they would like to handle the future of their estate and the taxes that follow from the passing of a loved one.
