Survivorship Life Insurance: Insuring Multiple People

Survivorship life insurance is a type of joint life insurance policy that covers two people, usually spouses, and pays a benefit only after both policyholders have passed away. This type of insurance is designed for specific situations, as it provides only one benefit payout. It is typically used for estate planning, business succession planning, special-needs planning, charitable giving, or when one spouse cannot afford individual life insurance. Survivorship life insurance is not suitable for couples in good health who can afford the premium for separate policies, as separate policies allow for two death benefits, one after each policyholder's death.

Survivorship life insurance is a joint policy for two people

Survivorship life insurance is a type of joint life insurance policy that covers two people (usually spouses) under a single policy. It is also known as second-to-die joint life insurance, as the death benefit is only paid out once both policyholders have passed away. This is in contrast to first-to-die policies, which are more common and pay out after the first policyholder dies.

While survivorship life insurance is typically purchased by married couples, the joint policyholders are not required to be married. It can also cover other relationships, such as business partners or a parent and child. This type of insurance is useful for estate planning and ensuring that heirs, dependents, or charities receive a benefit. It can also help with business succession planning and special-needs planning.

Survivorship life insurance is often more affordable than purchasing two separate permanent policies, as the insurance company only needs to pay out once both policyholders have died. It also has tax advantages, as the death benefit is usually income tax-free for the beneficiary. Additionally, policyholders may be able to tap into the policy's cash value while still alive.

However, one of the main drawbacks of survivorship life insurance is that the surviving partner receives no death benefit when the first person on the policy dies. This may not be suitable for couples where the surviving spouse relies on the income of the first spouse to cover expenses or maintain their standard of living.

It only pays out after both policyholders have died

Survivorship life insurance is a type of joint life insurance policy that covers two people under a single policy. It is also known as second-to-die joint life insurance as it only pays out a death benefit once both policyholders have died. This is in contrast to first-to-die policies, which are more common, and pay out after the first policyholder passes away.

Survivorship life insurance is typically purchased by couples as a means of leaving money to their children, or for estate planning purposes. It can also be used to fund a support system for a dependent who may require lifetime care, such as a special-needs child. In addition, survivorship life insurance can be used to simplify the transfer of assets to a non-relative, such as a friend or business associate, or to leave a legacy for a favourite charity or religious organisation.

Survivorship life insurance is often more affordable than two separate permanent policies, as the risk for the insurer is lower. There is only one payout, and the joint life expectancy is longer than individual life expectancy. This type of policy can also be useful in cases where one person is unable to qualify for individual coverage due to age or health issues.

However, there are some disadvantages to survivorship life insurance. The surviving partner does not receive a death benefit when the first policyholder dies, and divorce or other significant life changes can complicate the policy. Additionally, the policy does not typically cover expenses like funerals or burials, which would need to be covered by another type of life insurance policy.

It is typically permanent life insurance

Survivorship life insurance is a type of joint life insurance policy that covers two people, typically spouses, under a single policy. It is also known as "second-to-die" life insurance since the death benefit is paid out only after the second policyholder passes away. This type of insurance is particularly useful for estate planning and providing an inheritance for heirs, including permanent dependents.

Now, let's focus on the aspect of permanent life insurance.

Survivorship life insurance is usually a form of permanent life insurance. Permanent policies last for the entire life of the insured and have an investment component that accrues cash value over time. This cash value can be accessed by the surviving partner via a life insurance loan. There are two common types of permanent life insurance used for survivorship policies: whole life insurance and universal life insurance.

Whole life insurance:

Whole life insurance is the simplest form of permanent life insurance. It generally has guaranteed premiums, cash value, and death benefits. The premiums, cash value, and benefits remain constant throughout the life of the policy. This type of policy provides stable and predictable coverage.

Universal life insurance:

Universal life insurance offers more flexibility than whole life insurance. It may include a cash value component that allows policyholders to access funds during their lifetime. Universal life insurance policies vary based on risk and potential upside. This type of policy is suitable for those who want more control over their investments and are comfortable with a variable policy.

Both types of permanent life insurance provide lifelong coverage, ensuring that beneficiaries receive a death benefit when both policyholders pass away. The choice between whole life and universal life insurance depends on individual preferences, risk tolerance, and financial goals.

Survivorship life insurance as a permanent policy has several advantages. It is often less expensive than purchasing two separate permanent policies, and it can provide a more substantial death benefit. Additionally, it offers tax advantages for estate planning and helps create an inheritance for heirs.

However, there are also some considerations to keep in mind. Survivorship life insurance may not be suitable for couples in good health who can afford separate policies, as it provides only one death benefit. Additionally, the surviving partner does not receive a death benefit when the first policyholder dies.

It is often used for estate planning

Survivorship life insurance is often used for estate planning. This type of insurance covers two people under one policy and pays out a death benefit only when both have died. It is typically used by couples who want to leave funds for their children or other dependents after they have both passed away. The death benefit can also be used to pay off any outstanding estate taxes, preserving the value of the estate for heirs.

Survivorship life insurance is also known as "second-to-die" insurance, as the benefit is only paid out after the second person passes away. This type of insurance is usually purchased as a permanent policy, such as whole life or universal life insurance, which lasts for the entire lifetime of both individuals. These policies can build cash value over time, which can be borrowed against by the policyholders.

One of the main advantages of survivorship life insurance for estate planning is that it can provide a much larger death benefit than two individual policies for the same premium. This is because the insurance company only has to pay out once, rather than twice. Survivorship policies are also typically easier to qualify for and less expensive than two separate policies.

For high-net-worth couples, survivorship life insurance can be a valuable tool to reduce the tax burden for their heirs. The death benefit can provide immediate cash flow to pay estate taxes and related costs once both spouses have died. It can also help equalize the distribution of assets among heirs, especially when assets such as a family business are difficult to sell.

In addition to estate planning, survivorship life insurance can also be used for business succession planning, special needs planning, and charitable giving. However, it may not be suitable for couples where the surviving spouse needs the insurance benefit to cover expenses or maintain their standard of living after their partner's death.

It can be cheaper than two individual policies

Survivorship life insurance is typically cheaper than two individual policies. This is because the risk for the insurer is lower, as there is only one payout with a survivorship policy. The insurance company is not obligated to pay benefits until the deaths of both policyholders.

The underwriting process for a survivorship policy may also be less stringent. The underwriter will usually focus on the younger and/or healthier of the two applicants, as this person is likely to be the "second to die". The price of a survivorship policy is determined by how long the insurance company predicts the last surviving person will live.

The joint life expectancy of the policyholders is longer than their individual life expectancies, as one insured typically dies sometime after the other. This means that second-to-die policies may be more cost-efficient than first-to-die policies.

However, it is important to note that the actual policy cost can vary depending on factors such as age, health, lifestyle, type of insurance, and the insurance provider.

Frequently asked questions