What is a Survivorship Life Insurance Policy?
Survivorship life insurance, also known as second-to-die life insurance, is a type of permanent life insurance policy that pays out a death benefit only after the second insured person passes away. This type of policy is typically purchased by couples who want to ensure that their surviving spouse has financial security after the death of the first spouse. It can also be used to cover estate taxes or other financial obligations.
How Survivorship Life Insurance Works
A survivorship life insurance policy is a type of whole life insurance, which means that it provides coverage for the entire lifetime of the insured individuals. The policy is issued on two lives, and the death benefit is paid out only after the second insured person passes away. For example, if a couple purchases a survivorship life insurance policy, the death benefit will not be paid out until both spouses have passed away.
The premium for a survivorship life insurance policy is typically lower than the premium for two individual whole life insurance policies. This is because the insurance company only has to pay out the death benefit once, after both insured individuals have passed away. However, it’s important to note that the premium for a survivorship policy is still higher than the premium for a term life insurance policy, which only provides coverage for a specific period of time.
Benefits of Survivorship Life Insurance
There are several benefits to purchasing a survivorship life insurance policy, including:
- Financial security for the surviving spouse: Survivorship life insurance can provide financial security for the surviving spouse after the death of the first spouse. This can help to cover expenses such as funeral costs, mortgage payments, and living expenses.
- Estate tax planning: Survivorship life insurance can be used to help cover estate taxes. The death benefit can be used to pay the estate tax liability, which can help to prevent the surviving spouse from having to sell assets to cover the tax bill.
- Business succession planning: Survivorship life insurance can be used to help fund a business succession plan. The death benefit can be used to buy out the deceased owner’s interest in the business, which can help to ensure a smooth transition of ownership.
- Lower premiums than two individual policies: As mentioned earlier, the premium for a survivorship life insurance policy is typically lower than the premium for two individual whole life insurance policies.
Who Should Consider Survivorship Life Insurance?
Survivorship life insurance can be a good option for couples who:
- Want to ensure financial security for the surviving spouse: If you want to make sure your spouse is financially secure after your death, survivorship life insurance can be a good option.
- Are concerned about estate taxes: If you are concerned about estate taxes, survivorship life insurance can help to cover the tax liability.
- Have a business together: If you and your spouse own a business together, survivorship life insurance can help to fund a business succession plan.
- Are in good health: Survivorship life insurance policies are typically issued to individuals who are in good health. If you have health problems, you may have difficulty qualifying for a policy.
Examples of Survivorship Life Insurance
Here are some examples of how survivorship life insurance can be used:
- A couple with young children: A couple with young children can purchase a survivorship life insurance policy to ensure that their children will be financially secure if both parents pass away. The death benefit can be used to cover expenses such as education costs, living expenses, and other financial needs.
- A couple with a large estate: A couple with a large estate can purchase a survivorship life insurance policy to help cover estate taxes. The death benefit can be used to pay the estate tax liability, which can help to prevent the surviving spouse from having to sell assets to cover the tax bill.
- A business partnership: Two business partners can purchase a survivorship life insurance policy to help fund a business succession plan. The death benefit can be used to buy out the deceased partner’s interest in the business, which can help to ensure a smooth transition of ownership.
Case Studies
Here are some case studies that illustrate the benefits of survivorship life insurance:
- John and Mary: John and Mary are a couple with two young children. They purchase a survivorship life insurance policy to ensure that their children will be financially secure if both parents pass away. After John passes away, Mary is able to use the death benefit to cover her children’s education costs and living expenses.
- David and Susan: David and Susan are a couple with a large estate. They purchase a survivorship life insurance policy to help cover estate taxes. After David passes away, Susan is able to use the death benefit to pay the estate tax liability, which prevents her from having to sell assets to cover the tax bill.
- Tom and Jerry: Tom and Jerry are business partners who own a small restaurant. They purchase a survivorship life insurance policy to help fund a business succession plan. After Tom passes away, Jerry is able to use the death benefit to buy out Tom’s interest in the business, which ensures a smooth transition of ownership.
Statistics
According to a recent study by the Life Insurance Marketing and Research Association (LIMRA), 25% of couples in the United States have purchased a survivorship life insurance policy. The study also found that the average death benefit for a survivorship life insurance policy is $500,000.
Conclusion
Survivorship life insurance can be a valuable tool for couples who want to ensure financial security for their surviving spouse, cover estate taxes, or fund a business succession plan. If you are considering purchasing a survivorship life insurance policy, it is important to speak with a qualified financial advisor to determine if it is the right option for you.