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Survivorship life insurance: Is it right for me?
A joint policy for higher income couples looking for estate preservation.
Life insurance is about providing for those you leave behind. But if you’re married and both of you die, the estate rules change — which can leave a tax burden on your dependents. A survivorship policy can give peace of mind to those looking to leave a legacy or who need to care for family after both partners are gone.
What's in this guide?
What is survivorship life insurance?
Sometimes called second-to-die life insurance, a survivorship policy is typically used in estate planning to ensure the estate is preserved after a couple dies. Like permanent life insurance, most survivorship policies are designed to last your entire life and accrue cash value as you pay into it. That makes the policy a good way to leave a large, liquid cash asset to deal with estate taxes and other expenses after both partners die.
While a survivorship policy can be easier to obtain and less expensive than buying separate policies, this form of life insurance isn’t necessary for everyone.
What types of survivorship policies are available?
Typically, insurers offer these options for survivorship life insurance:
- Whole life. A permanent policy with accruing cash value that remains as long as the premium is paid.
- Variable life. Similar to a permanent policy, but the cash value is invested by the insurance company.
- Universal life. A form of permanent life insurance where the policy owner can change the amount of the premium and death benefits.
How survivorship life insurance works
Survivorship policies provide joint life insurance — most often for married couples — that only pays out once both policy holders have died. The couple pays one combined monthly premium to keep the policy active. When one partner dies, the surviving partner doesn’t get the death benefit, but the cash value can be used as collateral for a tax-free loan in case of emergencies. When the second partner dies, the death benefit is paid to the beneficiaries of the policy.
Can I add riders to a survivorship policy?
Yes. Every insurance company offers different options, and these are the best riders to protect both yourself and your spouse:
- Policy split option rider. Allows divorced couples to split their policy.
- Estate protection rider. Offers additional term life insurance if both partners die within four years of the policy being issued.
Should I get survivorship life insurance?
For most couples, it makes more sense to take out separate policies or joint policies that pay out to the surviving partner.
That being said, there are several scenarios where survivorship life insurance is the better choice:
- You have special needs children. If you have a child who will continue to need care after you’re gone, this policy can help provide for them.
- You want to use your policy for estate planning. The death benefit from a survivorship policy can help to cover estate taxes and other expenses that might force your heirs to have to sell off the family business or other assets to pay the IRS. The policy can also be used to accrue wealth for your family.
- You’re interested in charitable giving when you’re gone. You can split the beneficiaries of your policy to ensure that part of your benefit is donated to the charities you support.
- You’re in poor health. If one partner is in poor health, this kind of policy may be easier to qualify for and offer less expensive premiums. It can also provide a financial safety net for the surviving partner.
Pros and cons of survivorship life insurance
Pros
- It offers permanent coverage. You’re covered for your entire life, as long as you pay your premiums.
- It’s cheaper than joint life insurance. While still more expensive than a term life insurance policy, a joint policy’s premiums are based on the health of both partners, which can lower the cost.
- The policy is customizable. You customize your policy to your needs with riders and estate trust options.
Cons
- No survivor benefit. Because it doesn’t pay out until both spouses have died, there is no death benefit to the surviving spouse.
- The policy survives divorce. Regardless of the status of the marriage, the survivorship policy remains unless there is a specific rider in place to split the policy. That means the premiums need to be paid, even if the spouses have separated and remarried.
Alternatives to survivorship life insurance
If a survivorship policy isn’t the right fit, there are plenty of alternatives. These include:
- First-to-die life insurance. Designed for couples, this joint policy pays out when the first partner dies. Just keep in mind that they’re often more expensive than survivorship policies.
- Term life insurance. You could each take out a separate term life insurance policy and name your spouse as the beneficiary. That way, if one spouse dies, the other will have a financial safety net. Plus, term life insurance is the simplest and cheapest policy.
- Whole life insurance. If you want lifelong coverage — or to treat your policy as a cash asset — consider whole life insurance. This policy builds cash value over time and offers a guaranteed death benefit when you die, so you could name your spouse as a beneficiary.
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Bottom line
Survivorship life insurance can be a less expensive joint insurance option for couples to remove the burden of taxes and expenses for their beneficiaries. However, there’s no survivor benefit and, without a rider, the policy remains in place even if you get a divorce.
For joint options that provide death benefits for the surviving partner or for separate policy options, compare other insurance products that may better suit your needs.
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