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What are the significant features of the survivorship life insurance policies?

Monday, December 12th, 2011

Survivorship Life Insurance policies are slightly different from the rest of the life insurance policies. This is also better known as Joint and Survivor Life Insurance or Second to Die Life Insurance, where the lives of two people are insured, mainly husband and wife.

The death benefit is generally not paid to the beneficiary until the time of death of the second insured. These policies are normally available as Universal Life Insurance policies or Whole Life insurance policies. These are much more affordable when compared to purchasing two individual policies.

Survivorship Life Insurance policy is essentially an estate planning tool or an estate planning solution and that is the reason why this insurance policy does not pay until the demise of the second insured. It is designed to pay or offer assistance in paying for estate taxes. There can be a delay in estate taxes, until the demise of both spouses hence these special insurance policies have been designed.

Survivorship Life Insurance policy is essentially a useful tool that is more often used by wealthy people in estate planning. A Joint and Survivor Policy could be used to pay for estate taxes, by removing the proceeds of life insurance by using the gifting option as well as placing the policy in a third party ownership like a trust or in the children’s name. It is possible to preserve the net worth for your legal heirs by properly planning with the legal counsel. But this must be coupled with a second to die life insurance policy that is properly structured.

There are a number of couples who request Survivorship Life Insurance to ensure that the funds are made available to a child or children with special needs and are exclusively used for their care and financial upkeep after the demise of both parents. This method could also be used to avail individual life insurance in order to insure the income of each parent as well. Parents can alternatively look at individual disability insurance also. There are many parents who have used some planning in this regard.

The Survivorship Life Insurance policy could also double up as a ‘discounted dollars strategy. This means that one may use the policy to pay pennies now on the dollar, in order to avail 100-cent dollars when it is needed to take care of the estate taxes. This makes sense for every permanent life policy. For instance, if you have deposited $10,000 annually in a Survivorship Insurance for $1,000,000 of insurance, you are actually paying 1% per year to get 100% at a later stage. If there is a guarantee on the premium and if you along with your spouse live for about 30 years, then you would have paid about 30 cents for each dollar. This is a good strategy and if you set this up with a third party ownership such as a trust, then this could not only be tax free but will also not be subject to estate taxes as well. Your legal counsel should be able to offer assistance in this regard.


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