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Life insurance can give you peace of mind that your beneficiaries will have some financial support after you pass. However, life insurance can be a bit complicated, at least compared to auto and home insurance. Bankrate is here to help. Our expert insurance editorial team breaks down survivorship insurance to help you determine if this somewhat niche product is right for you and your family.
How do survivorship policies work?
A survivorship policy (sometimes called a second-to-die life insurance policy) allows two individuals to be covered under one life insurance policy. Most commonly, the two individuals seeking joint coverage are married couples, but not always. Under a survivorship policy, beneficiaries only receive the death benefit once both policyholders pass away.
Couples seeking life insurance coverage go through a joint underwriting process that enables insurers to determine their insurability, the rate they pay and the terms they receive in the policy. All these aspects of the policy remain unchanged with the death of the first spouse. As long as the surviving spouse continues to pay premiums on the policy, beneficiaries eventually receive the death benefit once the surviving spouse passes away.
Many survivorship policies come under the ownership of an irrevocable trust, also known as an irrevocable life insurance trust—ILIT. Because the primary purpose of the policy centers on providing money or assets to heirs or to provide a means to pay any money owed for federal, state and income taxes, survivorship policies can maximize estates and provide liquidity.
Survivorship policies may also be a good idea for couples who care for a special-needs family member who will need lifelong care. A survivorship policy can help ensure that this family member will have the funds needed for specialized care after the couple passes away.
What is the difference between joint life and survivorship life?
Both first-to-die and survivorship cover each policyholder simultaneously under the same policy. However, under a survivorship policy, the death benefit is only paid to beneficiaries once the surviving policyholder dies. Under a first-to-die policy, the remaining policyholder is the beneficiary and receives the death benefit.
Who needs a survivorship life insurance policy?
Survivorship policies could be worth exploring if you:
- Are concerned with estate planning and would like to take advantage of an ILIT
- If you have dependents that will need funds for specialized care after you and your partner pass away
- Find individual term policies come at a high cost due to unfavorable underwriting (your health or occupation, for example)
- If you were declined for life insurance but your spouse maintains good health (and is eligible for life insurance as a result)
Nonetheless, the benefits of a survivorship policy might apply to only very specific situations that make the delayed payout of the death benefit worthwhile. Due to the complex nature of this product, you might find it helpful to speak with a licensed life insurance agent or certified financial planner to determine if a survivorship policy makes sense for you and your family.
Why get survivorship life insurance?
While a somewhat unconventional life insurance product, survivorship life insurance policies could offer distinct advantages for those considered a good fit. Besides establishing security for dependent care, other survivorship life insurance advantages may include:
- Cost: Since the time between policy inception and the death benefit payout tend to be longer than that of a traditional life insurance policy (remember, the death benefit only applies once both policyholders pass), survivorship life insurance may be cheaper than traditional life insurance.
- Availability: Survivorship policies may be easier to qualify for.. Even in cases where one of the policyholders faces extreme health afflictions, coverage of two people spreads the risk and can provide a window for insurers to accept less desirable policyholders.
- Estate building: Insurers sometimes also make the case that survivorship policies offer policyholders a path toward estate building. While much of the argument bolstering survivorship policies focuses on protecting an estate from taxes, insurers also point out that beneficiaries receive a minimum payout regardless of estate financials.
- Estate preservation: Survivorship life insurance policies can offer policyholders a way to preserve their assets to heirs. With a survivorship policy in place, heirs receive an intact estate as well as the financial means to pay estate taxes and any applicable federal or state inheritance taxes.
- Investment: Survivorship life insurance policies come in both variable life and whole life varieties. With policies falling under the variable life category, policyholders invest premiums in a market account and gain the opportunity to grow the account.
|Pros of Survivorship Policies||Cons of Survivorship Policies|
|Income protection for permanent dependents
Estate building and estate preservation
|No income replacement for surviving spouse
Delayed payout of death benefit
How do you get a survivorship policy?
Steps policyholders could take to purchase a survivorship life insurance policy include:
- Assess your needs: Before deciding if a survivorship policy is right for you, it may be a good idea to sit down with your partner to assess your needs. Do you plan on bequeathing a sizable inheritance to your loved ones? Do you have a special-needs dependent who needs long-term care? If so, a survivorship policy may be worth considering.
- Ask for recommendations: If you know someone who currently holds a survivorship life insurance policy, you might want to ask about their experience or if they have an insurer to recommend.
- Seek professional guidance: Financial advisors and estate planning attorneys understand the perils, pitfalls and loopholes of various insurance products. Their expertise ensures any policies purchased by a couple provide the required coverage levels.
- Look at insurers’ customer reviews: When considering any particular insurer, looking over customer reviews provides a snapshot of the level and quality of service provided by the agency.
- Compare quotes and coverage: Once couples narrow down their policy search to just a few insurers, compare quotes in terms of premiums and coverage to find the best deal.
By taking the time to perform due diligence before buying a survivorship policy, couples may achieve peace of mind. Knowing a policy can help them reach their estate planning goals while also meeting the needs of beneficiaries can alleviate worry and anxiety.
Frequently asked questions
They could be. In many cases, survivorship policies cost couples less to purchase than two individual life insurance policies. This however, can depend on the health status of each individual, as well as other underwriting concerns. Of course, the tradeoff of the savings comes in the form of a delayed death benefit payout.
Usually. One of the more attractive features of survivorship policies includes the lack of emphasis on health status. In the eyes of insurers, the risk around providing the policy decreases with coverage of two people instead of a single individual.
The best life insurance company for you will vary based on personal preferences such as what policy you’re interested in and what level of customer service you’re looking for. To find the best provider for you, it can be helpful to talk with an independent insurance agent about your needs and generate quotes from multiple insurance carriers.