Some wealthy people are taking another look at survivorship insurance. The relatively obscure product, also known as "second-to die" insurance, insures two lives, usually spouses, with one policy.
Where there is a risk and an attending financial exposure you cannot afford, there is a form of insurance to cover that risk exposure. When it comes to the ultimate risk – your family’s risk of losing you – life insurance is the fundamental solution. But what if there are two spouses? Naturally, financial risk is felt by the survivor at the passing of the first. That is why almost everyone needs some form of life insurance to provide for the surviving spouse. However, when there is some quantifiable financial risk left behind when the survivor passes, then there is a special form of life insurance to cover such exposure. It is called “survivorship life insurance.”
For the basics on survivorship insurance, consider reading a recent Forbes article titled “Sales of Survivorship Insurance Gain.” This form of insurance is underwritten on the lives of both spouses, but only pays the benefits after the death of the surviving spouse. In essence, it works like two life insurance policies stacked together, and survivorship policies are almost always more affordable than owning separate policies on each spouse for the same grand total of death benefit. In addition, when properly owed in an irrevocable trust arrangement, the death benefit proceeds are even excluded from the insured couple’s estate tax calculation.
Survivorship insurance can help solve many financial risks. For example, at the death of the surviving spouse, the death benefits can help provide a “safety net” for a family member with special needs, ensure sufficient liquidity to pay any estate taxes that otherwise might threaten a “liquidity event” for estates heavily weighted in real estate, business interests or art, or help equalize estates when some children will inherit the family business and others will not. Second to die policies provide an addition benefit the article overlooks and that is it provides a specific albeit belated amount of inheritance in a blended family situation. This much needed 'how to' is something we deal with aplomb in our law firm; this insurance policy is but one of the many techniques we discuss with clients who might otherwise worry that the stepkids are planning their early demise.
As you can see, there are multiple reasons why survivorship life insurance sales are increasing. Especially in times of economic uncertainty, life insurance provides cash when needed most. You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.
Reference: Forbes (December 15, 2013) “Sales of Survivorship Insurance Gain”