Who Does Survivorship Life Insurance Benefit?
About 54 percent of Americans hold some form of life insurance. Later in life, the pros and cons of different life insurance policies are important considerations for married couples. As you undertake your estate strategy, it's vital to consider taking out a life insurance policy that suits your unique circumstances.1
How Does Life Insurance Work?
Life insurance ensures that a beneficiary (or beneficiaries) receives a payment in the event that the insured individual passes away. Married couples have the option of purchasing separate insurance policies, which cover each spouse individually, or a joint insurance policy, which insures both parties.
There are two types of joint insurance policies: first-to-die insurance policies and survivorship life insurance policies.
What Is Survivorship Life Insurance?
Survivorship life insurance, also called second-to-die life insurance, requires the death of both spouses for the death benefit to be paid out.
Typically, these are whole life insurance policies, meaning that the policy remains in effect as long as the premium is paid. When the first spouse dies, the other continues to pay the premium. When the second spouse dies, the death benefit is paid to the designated beneficiaries, typically their children.2
Survivorship life insurance is a unique type of life insurance, and it holds some unique advantages, namely it:
- Preserves wealth for one's estate and dependents
- Is affordable (compared with separate, individual policies)
Situations When Survivorship Life Insurance Might Make Sense
This type of life insurance isn't right for everyone. Rather, it's best suited for very specific scenarios.
Scenario #1: Child with Disability
If you have a child with a disability and you and your spouse are concerned about the ongoing well-being of your child after you both pass, survivorship life insurance might be a good choice. In this case, the funds from the policy can be used to guarantee the care of the child if/when both parents die.
Scenario #2: You're Preparing Your Estate
This life insurance policy is specifically designed to maximize the value of your estate. If you, likely in accordance with a financial professional, want to leave assets for your heirs and help them manage taxes, survivorship life insurance may be a good choice.
Keep in mind that this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your tax strategy.
The point of the first-to-die joint policy is to pay out the death benefit to the surviving spouse, aiding them financially. However, if you have a comprehensive financial strategy and/or sufficient assets to provide for the surviving spouse, you may want to consider survivorship life insurance. This is especially true if you have any children that are financially dependent on you.
Note that when the first spouse passes away, the surviving spouse may be able to access cash to the value accumulated by the insurance policy, which means that they won't be left entirely empty handed.
As you consider the various life insurance policies available, keep in mind the unique nuances of each policy. In general, couples in good health who are not preparing an estate may want to look at different types of policies. The life insurance policy you choose should fit the specific circumstances of your marriage, finances, and family.
1. III.org, 2022
2. Investopedia, 2022