Survivorship life insurance is a way to insure two people under one whole life insurance policy, and is most often used to insure a married couple or two business partners. The two types of survivorship life insurance polices are first to die policies, most often used by business partners, and second to die life insurance, where the death benefit is not paid until the death of the second insured. First to die life insurance policies generally have higher premiums than second to die life insurance policies and are more appropriate as business insurance.
Survivorship Life Insurance For Estate Planning
The advantage of survivorship life insurance as an estate planning tool is that the proceeds of the policy are usually exempt from estate taxes, allowing beneficiaries to keep all of the money paid from the policy. Estate taxes in the United States are 35%, which takes a substantial amount out of investments that may be inherited by children or other legatees. Survivorship policies allow the insured to preserve more of their estate for their heirs or beneficiaries, and they can be used to pay estate taxes on taxable assets.
Survivorship Policies For Business
When two partners own a business and one of them dies, the estate of that partner can claim his half of the business’s assets. This can create a financial void, making it difficult for the business to continue operating. A first to die policy can offset the loss of assets and keep the business functioning for the surviving partner. In first to die policies, the surviving business partner receives the death benefit, which protects the proceeds from any claims from the deceased partner’s estate.
Economic Advantages of Survivorship Life
The cheap premiums on survivorship life insurance policies are lower than the premiums on two individual permanent life insurance policies, which allow couples and business partners to save money. People who are considered uninsurable for standard term life insurance or whole life insurance policies may qualify for a second to die life insurance policy, since the death benefit is only paid when the second person dies. The second to die life policy is a relatively cheaper way to cover estate taxes which can reduce the amount that heirs inherit.
Tax Laws and Survivorship Policies
The tax laws concerning second to die survivorship life insurance are ambiguous, so it is important to consult an attorney specializing in estate planning to ensure that the proceeds of the policy are exempt from estate taxes. It may be necessary to place the policy in an irrevocable life insurance trust to avoid estate taxes. Second to die life insurance is most useful in estate planning when the parties have a relatively large estate, and may not offer much advantage to small or moderately-sized estates.
Disadvantages of Survivorship Life Insurance
Second to die life insurance may not be appropriate if the surviving spouse will suffer significant financial loss when the first spouse dies. A term life or whole life policy naming the surviving spouse as the beneficiary will provide funds for burial expenses and the financial needs of the survivor. When couples divorce they may not be able to change the terms of the policy. Finally, the surviving spouse may have to continue to pay premiums on the policy until they die in order to keep the policy in force.
Other Premium/Payment Options
Survivorship life insurance is a relatively new type of life insurance policy, and each of the best life insurance companies offer different coverage options to their customers, so consumers do need to research and compare a variety of life insurance policies, rates, and carriers. Some companies offer a single payment survivorship policy, where a lump sum is paid at the inception of the policy and no further premiums are due. This option may be attractive to couples that wish to leave a gift for a favorite charity, a bequest, scholarship, or a financial windfall for their children when the second spouse passes away.
Unique Benefits of Survivorship Life Insurance
Survivorship life insurance offers unique benefits that can help in estate planning or in planning for the future of a business partnership. Lower, more affordable life insurance rates make it a good choice where one spouse may be in poor health since the requirements for survivorship life insurance are less stringent than those for other policies. Those considering a survivorship life insurance policy should compare and weigh the advantages and disadvantages of the insurance policy before making a decision.
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