Survivorship life, also known as second-to-die insurance, insures two lives and pays a death benefit when the second insured dies. This unique structure provides an effective way for two people -- typically a husband and wife -- to meet potential estate-planning challenges.
- You can use survivorship life to provide for heirs if you or your spouse is uninsurable.
- Proceeds give heirs a way to pay the estate-tax liability on your combined estate.
If single-life coverage is unobtainable because of health issues, survivorship life can be used to provide a death benefit to heirs when the surviving spouse dies.
- Medical qualification standards are easier to meet.
- Premiums are frequently lower than they would be for two individual policies.
If you want to take advantage of the federal marital deduction in your estate plan, survivorship life can be an ideal tool to help heirs pay deferred tax liability on the estate when the surviving spouse dies.
- Because the marital deduction allows for assets to pass to the surviving spouse free of estate tax, the survivor has maximum financial flexibility.
- When the surviving spouse dies, however, heirs of the combined estate can face a significant estate tax burden .
- Survivorship life proceeds can be used to pay the estate taxes, leaving other estate assets intact for heirs.
Because survivorship life is permanent life insurance, it combines death benefit coverage with a tax-deferred savings component.
- Death benefits paid to beneficiaries are generally free of federal income tax.
Tax-deferred cash accumulation may be accessed to meet lifetime goals such as paying college tuition or supplementing retirement income