What is survivorship universal life insurance?

What is Survivorship Universal Life Insurance?

Survivorship universal life insurance, also known as second-to-die life insurance, is a type of permanent life insurance policy that covers two individuals, typically a married couple. It is designed to pay out a death benefit only after the second insured person passes away. This type of policy is often used for estate planning purposes, as it can help to cover estate taxes or other expenses that may arise upon the death of the second spouse.

Key Features of Survivorship Universal Life Insurance

Survivorship universal life insurance policies offer several key features that make them attractive to certain individuals and families:

  • Death Benefit Paid Upon Second Death: The death benefit is only paid out after the second insured person passes away. This means that the policy will remain in effect until both individuals have died.
  • Flexibility: Like traditional universal life insurance, survivorship universal life policies offer flexibility in terms of premium payments and death benefit amounts. Policyholders can adjust their premiums and death benefit to meet their changing needs.
  • Cash Value Accumulation: Survivorship universal life policies also build up cash value, which can be borrowed against or withdrawn. This cash value can be used for a variety of purposes, such as paying for college tuition or supplementing retirement income.
  • Estate Planning Tool: Survivorship universal life insurance can be a valuable tool for estate planning. It can help to cover estate taxes, provide liquidity for the estate, and ensure that the surviving spouse has financial security.

How Survivorship Universal Life Insurance Works

Survivorship universal life insurance works by combining the features of traditional universal life insurance with a specific death benefit structure. Here’s a breakdown of how it works:

  • Two Insured Individuals: The policy covers two individuals, typically a married couple. Both individuals must be in good health to qualify for the policy.
  • Premium Payments: Policyholders make premium payments to the insurance company. These premiums are used to cover the cost of insurance and to build up cash value.
  • Death Benefit: The death benefit is paid out only after the second insured person passes away. The amount of the death benefit is typically determined at the time the policy is purchased.
  • Cash Value Accumulation: A portion of the premium payments is allocated to the policy’s cash value account. This cash value grows over time, earning interest at a rate determined by the insurance company.
  • Flexibility: Policyholders have the flexibility to adjust their premium payments and death benefit amount over time. They can also borrow against or withdraw from the cash value account.

Benefits of Survivorship Universal Life Insurance

Survivorship universal life insurance offers several benefits, including:

  • Estate Tax Planning: The death benefit can be used to cover estate taxes, which can be significant for large estates. This can help to prevent the estate from having to sell assets to pay taxes.
  • Liquidity for the Estate: The death benefit can provide liquidity for the estate, which can be helpful for paying off debts, covering funeral expenses, or distributing assets to beneficiaries.
  • Financial Security for the Surviving Spouse: The death benefit can provide financial security for the surviving spouse, ensuring that they have the resources they need to maintain their lifestyle.
  • Flexibility: The policy offers flexibility in terms of premium payments and death benefit amounts, allowing policyholders to adjust the policy to meet their changing needs.

Disadvantages of Survivorship Universal Life Insurance

While survivorship universal life insurance offers several benefits, it also has some disadvantages:

  • Higher Premiums: Survivorship universal life insurance policies typically have higher premiums than traditional life insurance policies. This is because the policy covers two individuals and the death benefit is paid out only after the second person passes away.
  • Complexity: Survivorship universal life insurance policies can be complex, and it is important to understand the terms and conditions of the policy before purchasing it.
  • Potential for Investment Risk: The cash value component of survivorship universal life insurance policies is subject to investment risk. The value of the cash value account can fluctuate depending on the performance of the underlying investments.

Who Should Consider Survivorship Universal Life Insurance?

Survivorship universal life insurance is a good option for individuals and families who:

  • Have a large estate: The death benefit can help to cover estate taxes and provide liquidity for the estate.
  • Want to provide financial security for their surviving spouse: The death benefit can ensure that the surviving spouse has the resources they need to maintain their lifestyle.
  • Are looking for a flexible life insurance policy: Survivorship universal life insurance policies offer flexibility in terms of premium payments and death benefit amounts.

Conclusion

Survivorship universal life insurance is a type of permanent life insurance policy that covers two individuals and pays out a death benefit only after the second insured person passes away. It is a valuable tool for estate planning, as it can help to cover estate taxes, provide liquidity for the estate, and ensure that the surviving spouse has financial security. However, it is important to understand the complexities of the policy and the potential for investment risk before purchasing it.

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