Survivorship Life Insurance

Survivorship whole life insurance, also known as joint and survivor insurance or second-to-die insurance, provides life insurance to two individuals in one policy and pays a death benefit upon the second policyholder's death. Most survivorship life insurance policies are purchased by married couples, and can be advantageous because they are generally cheaper than a separate life policy for each spouse.

Survivorship whole life insurance can be a solution to relieve the burden of estate taxes. Although estate taxes are not due when one spouse dies, they are due when the second spouse passes away. So called death taxes can sometimes place a heavy burden on surviving beneficiaries. Survivorship whole life insurance can ensure that those taxes are paid without decimating a deceased person's estate.

Why Is it Useful?

Survivorship whole life insurance can be helpful as an estate planning tool because it can be used to pay sizeable estate taxes and other expenses that can eat into an inheritance. According to American Banker, estate tax liability can be devastating to beneficiaries--particularly when a family business is involved. Survivorship whole life insurance can protect the inheritance from estate taxes that sometimes force survivors to sell an inherited business to pay the taxes.

Survivorship whole life insurance can also provide the proceeds to set up a charitable remainder trust. Trusts allow you to sell an asset without paying capital gains taxes, and setting up a survivorship whole life insurance policy for your children may help to circumvent your heirs from being dispossessed from the assets that go into the trust.

A survivorship whole life insurance policy can also "even out an inheritance" among surviving children. For instance, if a small business is worth $4 million of a couple's $6 million estate and only one of three heirs is going to inherit the business, a survivorship whole life insurance policy can be set up to pay the other heirs a benefit equal to the value of the business.

Who Should Consider It?

Survivorship whole life insurance may also make sense for a broad range of people, including:

  • Couples where one spouse is in poor health and may not be able to get or afford whole life insurance
  • Parents of a child with special needs who requires special care and financial security after both parents have passed away. In this case, individual life insurance for each parent's income might also be a good idea
  • Business owners who want funds to protect a business in the event that both partners die. The survivorship whole life insurance policy can pay liquidation expenses or help keep the business going until it is sold
  • Couples between the ages of 50 and 80. According to American Banker, people in their 20s and 30s, where one spouse is the principal breadwinner, usually find that an individual whole life insurance policy for the breadwinner makes more sense than a survivorship whole life insurance policy

Payment Options

Many insurance companies offer different payment methods depending on your personal situation. Premiums can remain fixed for the lifetime of the policy, or they can be fixed for 15 years and may double for couples who need some time to prepare for the higher premium payments. Riders are also available from many companies--such as one that pays a partial death benefit to the surviving spouse after their spouse dies.

In many cases, particularly when a large estate is at stake, it's also a good idea for couples to consult a tax expert and an attorney when considering a survivorship whole life insurance to preserve their net worth.


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