Imagine you and someone else, like your spouse or business partner, are covered under a unique type of joint life insurance that only pays out after both of you have passed away. Insuring two people on the same policy that only pays out when both have died is called a survivorship life insurance policy. It’s unusual because it doesn’t give money until the second person dies. It’s useful if you want to leave a large inheritance, take care of estate taxes smoothly, or ensure a business can continue without financial hiccups. While it might not be for everyone, this insurance could be a perfect fit in certain cases, like when you want to leave a legacy or have a special needs child who’ll need care after you’re gone. Plus, it’s generally more affordable and easier to qualify for than individual policies, making it an attractive option for securing your financial plans.
Table of Contents
- Key Takeaways
- What is a Survivorship Life Insurance Policy?
- What Type of Survivorship Policy is Best?
- Best Survivorship Life Insurance Companies
- Who needs Survivorship Insurance?
- Second to Die Life Insurance Rates
- Pros of Survivorship Life Insurance
- Cons of Survivorship Life Insurance
- Conclusion
Key Takeaways
- Survivorship life insurance covers two people, typically partners or business associates, and pays out after both have passed away.
- Ideal for estate planning, legacy building, or ensuring business continuity.
- More affordable than purchasing two separate life insurance policies.
- Qualification might be easier, particularly if one person is older or has health issues.
- Not suitable if immediate financial support for the surviving policyholder is needed.
What is a Survivorship Life Insurance Policy?
Survivorship life insurance, also known as a second to die policy, is a joint life insurance policy designed for two individuals, typically a married couple, where the death benefit is only paid out after the death of the second insured person. This policy is often used for estate planning purposes, to leave a legacy to heirs or charities, or to ensure the continuation of a business. It can be more affordable and easier to qualify for than individual policies, especially if one of the insured is older or has health issues, because the policy payout is contingent on the second death. Survivorship life insurance can also provide liquidity to help cover estate taxes and final expenses or to fund the care of a special needs family member.
Types of Survivorship Life Insurance include:
- Whole Life Insurance
- Universal Life Insurance
Some survivorship life insurance features include:
- Rates Determined by Joint Equal Age or Joint Life Expectancy
- Available for ages 18-90
- $100,000 Minimum Coverage
- Various Riders Available such as: Waiver of Premium, Accelerated Death Benefit for Terminal Illness
What Type of Policy is Best for Survivorship Life Insurance?
A Survivorship Policy is permanent life insurance. Different companies offer various chassis for their survivorship life insurance policies,
Survivorship Whole Life Insurance
Dividend paying whole life insurance policies provide the guarantees of whole life with additional annual dividend payments. Although not guaranteed, most dividend paying whole life insurance companies have paid dividends for over 100 straight years. A survivorship whole life policy is a good option for those seeking safe returns, not connected to the stock market.
Survivorship Guaranteed Universal Life Insurance
Guaranteed universal life insurance is typically built primarily for the death benefit and builds very little cash value. A survivorship GUL policy is a good option for those who want a permanent death benefit with the lowest premium.
Survivorship Indexed Universal Life Insurance
Indexed universal life insurance provides a permanent death benefit with the opportunity for higher returns by allocating cash value into certain indexed accounts that track a particular index, such as the S&P 500. These Survivorship IUL policies provide potentially higher returns than whole life but they may also have years of 0% returns when the underlying index performs poorly.
Survivorship Variable Universal Life Insurance
Variable universal life insurance invests the cash value account into subaccounts that act like mutual funds, providing market based returns. Survivorship VUL has the greatest potential for gains, but with the risk of principal loss since money is invested directly into market based subaccounts.
Single Premium Survivorship Life Insurance
In addition, some couples will choose to buy single premium survivorship life insurance because the policy is completely paid up and the insureds know they are securing a legacy for their children.
Single premium life insurance often offers the best return because you are handing over a large sum of money to the life insurance company up front. The trade-off is that you are guaranteed a substantial death benefit for your heirs when both insured individuals die, and there is no worry about the policy lapsing.
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Who needs Survivorship Insurance?
Survivorship life insurance is ideal when you do not need the money to go to your spouse or business partner but rather you need it to go to your estate or business to provide needed liquidity upon the passing of two people. Some examples of who needs survivorship life insurance policy would be:
- You and your spouse are a high net worth family, and you know your estate will be hit with heavy estate taxes.
- You and your spouse desire to pass on a significant legacy to your heirs or to a charity.
- You and your business partner are co-business owners and you both want the business to stay intact or at least not be liquidated upon both of you passing.
- You and your spouse have a child with special needs and you want to cover the costs of a caregiver and provide replacement income for your child.
Survivorship Life Insurance Rates
The following sample survivorship life insurance rates are based on non-smoker preferred best rate class from A- rated carriers and above. All rates are for educational purposes only, are not guaranteed, and must be qualified for.
| Ages | Guaranteed Level Annual Premium | One Pay Single Premium | Death Benefit |
|---|---|---|---|
| 60/60 | $10,000 | $200,000 | $1,000,000 |
| 65/65 | $13,000 | $260,000 | $1,000,000 |
| 70/70 | $18,000 | $340,000 | $1,000,000 |
| 75/75 | $24,000 | $430,000 | $1,000,000 |
| 80/80 | $38,000 | $580,000 | $1,000,000 |
Pros of Survivorship Life Insurance
1. Less expensive
Generally, survivorship life insurance is more affordable compared to buying two separate policies, as it only pays out after the second insured individual’s death.
Example
A husband and wife just under 70 years of age insured for $4 million individually via a whole life insurance policy had premium payments of roughly $50,000 and $40,000 annually. It’s a high premium, but they are both likely to die within 20 years, and they both have a guaranteed $2 million death benefit. The combined premium for the two is a whopping $90,000 annually! Very few people can afford this kind of insurance.
But keep in mind that they were likely to get $4 million within 20 years. For the same husband and wife to purchase survivorship insurance for $4 million, the policy premium was roughly $54,000 annually. As you can see the price is significantly less and it almost the same price for insuring one of them for $2 million. In fact, that’s about a 40% savings for the same death benefit!
Help From the Beneficiaries
In many situations the children of elderly parents help cover the cost of a survivorship life insurance policy among all the heirs, so as to mitigate the cost while securing a substantial death benefit. As an example using the information above, consider a family of 5 grown children. If each family was willing to pay $11,000 annually in premiums, they would each be individually guaranteed a payout of nearly $800,000 tax-free within approximately 20 years.
2. Easier to Qualify
Despite medical underwriting requirements, it might be simpler for you to qualify for a survivorship policy than individual coverage, especially if one of you is much older or has health issues since the policy pays out after the second person passes.
We mentioned that applying for a policy for both spouses results in a lower premium, but it also means that the life insurance underwriting process is usually easier. The insurance company will usually focus on the youngest or healthiest of the two insured individuals.
This is good news for those that would otherwise be uninsurable because theย insurance company will still include them on the survivorship life insurance as long as the other insured is able to qualify. And remember that the cost to insure both spouses or business owners is likely much less than insuring even the one individual healthy person.
Discount
For example, a premium for a healthy spouse may be $10,000 a year, but insuring that same spouse along with a spouse in poor health may provide 30-40% lower premiums, as the unhealthy spouse provides a discount for the survivorship life insurance.
3. Estate Security
If your estate is likely to be impacted by taxes in such a way as to diminish the overall stability of the estate, insurance may be able to help. For those that have a high net worth, they may have property, business interest, and investments that are all taxable when inherited.
Survivorship life policies allow you to pass on wealth to your beneficiaries in a tax-favored manner, offering immediate liquidity for estate taxes, final expenses, or business transitions, thus securing your legacy and financial strategy.
And if cash flow (i.e. access to liquid money) is an issue, say for a large estate that is made of primarily of real property, the quick influx of money can be an estate saver.
Irrevocable Life Insurance Trust
In a typical scenario a high net worth family will purchase survivorship insurance via a Irrevocable Life Insurance Trust (ILIT). With an ILIT, the trust is the owner of the life insurance and the heirs are granted the typical rights associated with a family trust. When the insured individuals die, the life insurance company pays the trust the death benefit, which allows the death benefit to be controlled by the trust and ensures that it is not considered part of the estate or inheritance.
4. Legacy Creation
In the example above we saw a family of five children paying the survivorship life insurance premiums for their parents. Some families choose to do this to create a legacy for all the beneficiaries involved.
Some families actually map out a plan for ever increasing life insurance policies on subsequent generations using the proceeds of each death benefit. It may seem trivial, but by following the plan, a family can accrue tens of millions of dollars in just 3 generations.
The typical plan would involve using proceeds from the life insurance death benefit to purchase life insurance on the beneficiaries of the policy. Then educating future heirs to the benefits of this strategy. This is a simplistic view of this type of planning but the main point is that future generations continue building the legacy by getting life insurance for their heirs, just like they benefited from their previous generation. If followed, this type of strategy will create generational wealth in a few short generations.
5. Estate Equality
If a family is in need of a family owned business succession plan because the family business will one day be run by only one of the children after the insured dies, it’s possible that they will want to leave all of the company to the child running the family business, but still provide something significant for other children that are not involved.
With survivorship life policies, the family can choose to split up the family estate in such a way as to ensure the children are all equally compensated as heirs, but yet given significantly different assets based on their interests and strengths.
And what may be even more important, the family business is able to stay in the family and in tact without the worry of selling it off at fire-sale prices just to divide the proceeds equally among the heirs.
6. Estate Preservation
You can design your policy with additional coverage add-ons to increase protection, offer flexibility, or give support during unexpected events like extended illness.
The chances of either you or your spouse needing long-term care services are above 50%. The number is probably much higher as people are living longer than ever. And the price for long term care services are climbing at a higher rate than inflation.
As a result, many people are looking beyond the stand alone long term care insurance to new hybrid long term care life insurance policies. And many of these policies allow both spouses to have access to the same pool of benefits. That way, if one spouse needs additional care after his or her benefits run out, they can tap into the other spouse’s long term care benefit.
7. Special Needs Child
It can also serve as a long-term funding source for a family member with special needs. For example, using special needs planning with life insurance, a couple can provide for a child with special needs so that they are protected financially upon the death of both parents.
Cons of Survivorship Life Insurance
The pros to survivorship life insurance are pretty compelling for those that may be in the right situation in life, but there are still some cons to consider as well.
1. No payout until second death
First and foremost, and it is probably obvious to all, the major con of survivorship life insurance is that there isn’t any death benefit until both insured parties have died. Survivorship life insurance is not the financial tool to safeguard your income for your spouse, and it could actually be a substantial burden on your spouse if the surviving spouse has an impaired ability to pay the premiums.
Life Settlement
But don’t assume that the only option for the surviving spouse who can no longer pay premiums is to allow the policy to lapse. Permanent life insurance policies may be sold. Those that specialize in life settlements (also known as viatical settlements) will be happy to buy your policy at a price that is usually much better than the price the insurance company is willing to give you (the cash surrender value).
2. Marital Changes
It may seem like an impossibility when the policy was put in place, but life happens and marital changes may occur. If they do, the policy is not going to change, so you may want to keep that in mind.
So, if a couple has a survivorship policy and later decides to divorce, the policy is still in place, and premiums will still have to be paid. If one person dies, and the survivor decides to remarry, the premiums still need to be paid.
In some situations the new spouse may not be too excited about paying premiums on a policy that doesn’t benefit their own heirs, choosing instead to surrender the policy for whatever the surrender value is at that time.
Split
Some companies allow the survivorship life insurance policy to be split if certain conditions are met, such as divorce, dissolution of business, or repeal of the federal estate tax.
3. Not Cash Value Growth Focused
While these survivorship life insurance policies are sometimes touted as providing an alternative income source later in life, the policy design is not for the maximization of early high cash value growth. Rather, the primary objective is to get the largest death benefit possible. There will most likely be some cash value available if needed, but this type of policy should not be purchased for retirement income if the main point of the policy is the death benefit.
Conclusion
Survivorship life insurance offers a strategic approach for couples or closely connected individuals aiming to secure their financial legacy, manage estate taxes efficiently, or safeguard the future of a special needs family member. It stands out due to its cost-effectiveness compared to individual policies and its relatively simpler qualification criteria, making it an appealing option for those with significant estate planning goals. By thoughtfully integrating survivorship life insurance into a comprehensive financial plan, policyholders can ensure a robust safety net for their heirs, facilitating a smooth transition of wealth and fulfilling long-term financial aspirations.
If you are interested in seeing how your own numbers look, please give us a call today to speak to a licensed professional who can help you make an informed decision if survivorship life insurance is right for you.
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11 comments
Michael Paul Thonnerieux
In number 4 you describe that some families “map out increasing policies on future generations” Can you tell me more about how this works? Thanks
Insurance&Estates
Some families actually map out a plan for ever increasing policies on subsequent generations using the proceeds of each death benefit. It may seem trivial, but by following the plan, a family can accrue tens of millions of dollars in just 3 generations.
The typical plan would involve using proceeds from the life insurance death benefit to purchase life insurance on the beneficiaries of the policy. Then educating future heirs to the benefits of this strategy. This is a simplistic view of this type of planning but the main point is that future generations continue building the legacy by getting life insurance for their heirs, just like they benefited from their previous generation. If followed, this type of strategy will create generational wealth in a few short generations.
Best, Steve Gibbs for I&E
Steven Gibbs is a licensed insurance agent, and the following agent
license numbers of Steven Gibbs are provided as required by state law:
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UT agent #655544.
Guru
Does the monthly premium come down when one of the spouses die on a Survivorship Universal Life Policy? If yes, roughly how much reduction itโd be? If not, what are the best options to keep the policy intact to get full death benefit on the death of the second spouse to be passed on to the beneficiary? Would appreciate providing the right answer, please. Thank you in advance!
Insurance&Estates
Hello Guru, on a second to die, depending upon the design of the illustration, the premium generally remains level and continues until the death of the second spouse if designed as paid up to 100 year (often the case). With the limited pay design, the premium would end at designated year (10, 20 years, etc.). If you’d like to inquire directly with our expert Jason Herring, go ahead and reach out to him at jason@insuranceandestates.com.
Best, Steve Gibbs, for I&E
Sue
What does โ Miderationโ mean? I received the reply that my original question was โ waiting moderation.
Please explain . Thank you , Sue
Insurance&Estates
This is just an auto response from the website saying that we hadn’t reviewed your comment as of yet. Please see my prior response.
Best, Steve
Sue
1)Can a second to die insurance policy originally bought with one single premium require an additional premium future?
Yes. Or. NO
2) IF โ NOโ
A). will the cash value accumulated in the single premium Second to Die policy be added to the face value at the 2nd death .
B). If โYESโ: Can the cash accumulated in the policy be used to pay any required premium ?
Insurance&Estates
Hello Sue, for cash value second to die questions, I suggest you check in with Barry Brooksby. You can connect with him at barry@insuranceandestates.com.
Best,
Steve Gibbs for I&E
Sylvia S.
I am 78 and my husband is 79. We have refinanced our Home Equity loan and
What would be the cost monthly for a second to Die term life insurance policy for my husband an d I. I am 78 and he is 79. We would have to cover 45 thousand dollars.
Insurance&Estates
Sylvia,
When determining what your monthly cost might be, there are a lot of factors that will come into play besides just ones age and gender.
For this reason, we have asked one of our gents to send you an email with her contact information so that you may be able to give her a call at your earliest convenience. This way she will be able to give you an accurate quote for you to consider.
Thanks,
I&E
eric van haaften
Nice article on survivorship life insurance. As you mentioned, with changes in the estate tax laws many people should consider a policy to increase the value of their estate. A second to die life policy provides a much better return on investment compared to individual universal or whole life policies. Best of luck in 2019!