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Just like car insurance protects your finances in the event that something unexpected happens, life insurance protects your loved ones financially in the event that you pass away. There are several different types of life insurance policies, including survivor insurance.
A survivorship life insurance policy leaves money to your loved ones after you and your partner pass away. If you’re wondering whether it’s right for you, this article discusses what it is, how it works, who needs it and how to get it.
How do survivorship policies work?
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.
Most 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 maximize estates and provide liquidity.
What is the difference between joint life and survivorship life?
A form of joint life insurance, survivorship life insurance covers each spouse simultaneously under a single policy and then pays out only after both the policyholders die. In this way, survivorship policies differ from other joint life insurance policies that come with a first-to-die death benefit.
The first-to-die benefit acts as some income replacement for the surviving spouse. With survivorship life insurance policies, the death benefit ensures lifelong care for policyholders’ permanent dependents with specialized needs.
Who needs a survivorship life insurance policy?
Primarily designed for individuals concerned with estate planning or those with permanent dependent responsibilities, survivorship policies sometimes also fit the bill for others in particular circumstances. Personal circumstances warranting exploration into survivorship policies include couples who:
- Find individual term policies unaffordable
- Include one spouse declined for life insurance while the other spouse maintains good health
- Need a cash value life insurance policy
While survivorship life insurance policies predominately serve the insurance needs of individuals concerned with estate planning or lifelong dependent care, the product also stretches its utility to a select demographic. Nonetheless, the benefits of a survivorship policies apply to only very specific situations that make the delayed payout of the death benefit worthwhile.
Why get survivorship life insurance?
While a somewhat unconventional life insurance product, survivorship life insurance policies offer distinct advantages for those considered a good fit according to their specific profile.
Besides establishing security for permanent dependent care, other survivorship life insurance advantages include:
- Cost: Survivorship life insurance usually costs less per thousand dollars of death benefit value than policies sold as traditional single-insured life insurance. As survivorship policy premiums center on the joint life expectancy of policyholders, insurers generally offer cheaper premiums as a tradeoff for expected time before both policyholders die
- Availability: Insurers’ concerns around poor health lessen with survivorship life insurance policies where both policyholders die before paying out the death benefit. Even in cases where one of the policyholders faces extreme health afflictions, coverage of two people spreads the risk and provides 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 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
Division of property in case of divorce
How do you get a survivorship policy?
Steps couples take in the purchase of a survivorship life insurance policy include:
- Assess: Couples taking an account of their personal situation to assess the needs of the family after one spouse dies and after both spouses die creates the framework required to determine the type of policy and the size of policy required in order to meet responsibilities.
- Ask for recommendations: Tap family and community members for any insights or recommendations for insurers.
- 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 offerings 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 achieve peace of mind. Knowing a policy serves their desires around their estate and also meets the needs of beneficiaries provides assurances that alleviate worry and anxiety.
Frequently asked questions
Are survivorship life insurance policies cheaper than individual life policies?
Yes. In many cases survivorship policies cost couples less to purchase than two individual life insurance policies. Of course, the tradeoff of the savings comes in the form of a delayed death benefit payout.
Are survivorship policies available to couples that include a spouse with health problems?
Yes. 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.
What is the best life insurance company?
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.