What Is Survivorship Life Insurance: An Alternative To Joint Life Insurance
Joint life insurance is a popular option for married couples who want to protect their family. They’re also useful for business owners who want to protect their company’s future.
However, these policies usually payout on the death of one spouse or partner. What if you wanted to ensure financial stability for your children if both you and your life/business partner die?
With survivorship life insurance, you can rest knowing that your children or business will be financially protected when you’re both gone. In this guide, we’ll explain what survivorship life insurance is and how it can benefit not only families but also business partners!
Understanding Survivorship Life Insurance
Survivorship life insurance, also called second-to-die or dual-life insurance, is a type of joint life insurance policy that covers two people at the same time. In this type of policy, the insurance company pays out its death benefit when both policyholders pass away. These policies are usually sold as permanent life insurance policies with a cash value component.
Typically, survivorship life insurance is used to protect the policyholder's dependents in the event of their death. They can also use these policies to build up inheritance and pay estate settlement costs.
Key Features Of A Survivorship Policy
In this section, we’ll explain what sets survivorship life insurance policies apart from other types of joint life insurance.
Cash Value Component
Like other permanent life insurance options, survivorship policies also boast a cash value component. This cash value builds up as you make premium payments. Once you’ve built up enough cash value, you can withdraw money from it or use it to pay your insurance costs.
More Relaxed Approval Requirements
Compared to first-to-die policies, it’s easier to qualify for a survivorship life insurance policy. Because the policy pays out upon both policyholders’ deaths, the life insurance company is more likely to accept riskier and less-healthy clients.
Dual-life insurance is also not as strict with eligibility requirements. This means that you’re more likely to be accepted for dual-life insurance coverage even if you or your joint policyholder are usually ineligible for other types of insurance.
Option To Split The Policy
In marriage or business partnerships, there’s always a chance that the relationship doesn’t work out – both parties may agree to separate. Some life insurance companies offer riders that allow you to split your dual-life policies in the event of a separation. However, not all insurers offer this option, and the process may be difficult.
Why Should I Buy A Survivorship Life Insurance Policy?
People buy life insurance for various purposes. In this section, we’ll discuss what needs can be fulfilled by purchasing survivorship life insurance.
Protect Your Dependent Children
Because both policyholders have to pass away before the life insurance death benefit is paid out, a survivorship life policy doesn’t make for a good income replacement. However, a second-to-die life insurance policy is a good option if you want to make sure that your children are financially stable after you and your spouse’s deaths.
To ensure that your children are financially protected, you can put your death benefit in a trust. Managed by a financial professional, trusts can handle your children’s income until they become financially independent.
Help With Your Estate Planning
Survivorship insurance works well as an estate planning tool. The income tax-free death benefit offered by this policy can help your heirs pay estate taxes and settlement costs, allowing them to keep most of their inheritance.
Enjoy Lower Insurance Rates
Because dual-life policies are paid out when both policyholders have passed away, the premiums are usually calculated for the younger and healthier spouse. This allows a survivorship policy to be much cheaper compared to a first-to-die joint policy or separate individual policies.
Who Benefits The Most From A Survivorship Policy
With its second-to-die feature, a survivorship policy caters to a very specific need. Here’s a breakdown of who can benefit greatly from survivorship life insurance.
Since survivorship policies can be bought by any two people, they can be used to aid in your business transition planning. A dual-life policy can fund the company’s transfer of ownership after both partners’ deaths. Alternatively, the death benefit can also be distributed equally to the partners’ heirs, who may choose to continue the business.
Parents Of A Special Needs Child
Parents of special needs children have more to worry about when they pass away. Survivorship life insurance can help ensure that their child will be financially stable even after their deaths. A Special Needs Trust can help you set up financial stability for a special needs child – just name a trust as your beneficiary.
Couples With Medical Conditions
Because the insurer typically assesses the younger and healthier policyholder’s risk, it’s easier to qualify and get better rates with survivorship policies. This makes dual-life insurance the cheaper option if you or your spouse suffer from a medical condition, as long as the other has relatively better health.
Alternatives To Survivorship Life Insurance
The second-to-die feature of survivorship insurance may not be right for everyone. In this section, we outline some alternatives for multiple-person insurance that you can consider.
First-To-Die Joint Life Insurance
The most common type of joint life insurance, a first-to-die policy pays out the benefit to the surviving spouse. Compared to separate policies, this type of joint life insurance usually offers lower rates and only requires one premium payment each month. However, once the first spouse dies, the surviving spouse will have no insurance coverage.
Individual Insurance Policies
Purchasing two individual life insurance policies are much more expensive, but they’re also easier to handle. Each one can be customized according to the policyholder’s needs, and there’s no need to split the policy if the marriage or business partnership ends. Plus, when each spouse has their own insurance policy, their loved ones can benefit from double the insurance coverage.
Having two separate policies is best for spouses who are still young and healthy because premiums will be more affordable. Depending on your needs, you can opt for whole life or term life insurance.
While survivorship life insurance may not be the best option for everyone, it’s effective in certain circumstances. A survivorship policy’s second-to-die feature can ensure your child’s financial stability and help them pay estate taxes. Survivorship insurance coverage can also help your business continue even after you and your partner die.
If you’re looking for a survivorship life insurance policy that fulfills your specific needs, Wesley Insurance, LLC is here to help! Our professional team can help you navigate the insurance market to find the policy that’s right for you. Contact us today for more information!