Survivorship Life Insurance: The Two-for-One Deal
Survivorship life insurance, also known as second-to-die joint life insurance, covers two people on a single policy. These policies only pay out their death benefits after both policyholders have died.
Say you and your spouse have one of these policies. If you die, the policy won’t pay out a death benefit to your spouse. However, after your spouse passes away, your beneficiaries will receive the death benefit.
While many spouses sign up for survivorship life insurance, policyholders don’t have to be married. Any two people can sign up for this insurance together.
Why choose such a policy? It’s usually less expensive to take out a survivorship life policy than it is for spouses or partners to take out separate policies. These policies can also help with estate planning: You can make sure that your policy’s death benefit goes to your children or other heirs once you and your fellow policyholder have died.
Know the basics
A survivorship life insurance policy is usually a type of permanent life insurance, such as whole life or universal life. Unlike term life insurance, which expires after a specified number of years, permanent life insurance remains in effect for your entire life.
These permanent life insurance policies also serve as investment vehicles, unlike term life insurance. They will build cash value over time that you can withdraw and spend however you’d like.
On the negative side, permanent life insurance policies, including those that come with survivorship benefits, tend to be more expensive than term life insurance.
Why choose a survivorship policy?
Consider a survivorship life insurance policy if you want to leave a sizable inheritance to your children. This child may require ongoing medical care throughout their life or the support of a charity.
Others choose these policies because they are a less expensive way to provide coverage for multiple individuals. Generally, you’ll pay less for a survivorship life insurance policy than you would by purchasing a separate life insurance policy for yourself and your spouse or partner.
The death benefit that comes with a survivorship policy is usually larger than what you’d get by purchasing two separate life insurance policies. Again, this can be beneficial if you wish to leave a substantial amount of money to your heirs or a dependent who may require long-term medical care.
This might also be a smart move if either you, your spouse or partner is struggling because of health conditions to qualify for a traditional life insurance policy. Insurers might be more willing to insure both you and your partner if they know that they won’t have to pay out a death benefit until both of you die.
Just be aware that there is one significant drawback with this type of policy: Neither of the policyholders can be the beneficiary for the policy’s death benefit. This means that you can’t leave your death benefit to your spouse or partner.
Consult with your financial advisor to determine if this is the right option for you.
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