2nd to Die Life Insurance, What it is, How it Works and Do You Need it?

Written by CFA Insurance

In this life, one of the most essential aspects as human beings is to take good care of our families. We only have one chance to live, and it’s therefore imperative to take such a great opportunity to offer emotional love and support to those people who matter in our lives. When you are alive, you can struggle in order to offer your family that love and care they deserve. However, after you die, you can no longer comfort them whenever they need you, but there is one way to cater to their financial problems, and this is through life insurance. Depending on your life insurance needs, a second-to-die life insurance policy can be a sure bet if at all you love and cherish your family.

What is Second-to Die Life Insurance?

By a simple definition, it is a type of permanent life insurance policy that pays a death benefit to the designated beneficiaries only after the death of the second insured party. Also known as survivorship insurance or dual-life insurance, the second-to-die life insurance policy insures the lives of only two individuals, usually, a man and his wife.

How it Works

Just like any other life insurance policy, second-to-die insurance has its own policy terms. The key term for this policy states that the associated death benefit cannot be executed until the second person covered under the policy has passed away. But once both of the policyholders die, the death benefit can be paid to the designated beneficiaries.

Second-to-die insurance policies are good for couples with large assets and not those with liquid cash in the bank. This kind of policy allows your estate to grow and provides enough cash to help protect it from estate taxes.

A survivorship policy is not meant to furnish you and your spouse with money while you are alive. Instead, it is designed to leave money behind, thus creating enough cash to help offset your estate taxes. You do not want your inheritors to be forced to sell the assets you left behind while still mourning your demise.

Another thing about survivorship policies is that they are quite lenient with underwriting. Even if you or your partner has health issues, your insurer will still be considerate. Also, these policies are quite affordable. Still, a survivorship policy is ideal for anyone wishing to insure the future of a child that has special needs.

If you decide to purchase a 2nd to die life insurance policy, you should stay away from term life insurance. This is because term life policies usually expire at the age of 80, so the chances of outliving it are incredibly high. But with survivorship policies, the death benefit is granted when both parents die, and remember most females usually see their 90th birthdays.

Why You Might Need It

Survivorship insurance is among the many different products that are meant for life insurance coverage. Take a situation whereby you and your spouse dies unexpectedly leaving behind a large estate to be inherited by your family members. Do you know how much debt burden you will have passed to your loved ones?

Remember that estates that are larger than average usually attract huge taxes. So, if there is no alternative to cater to such big debts, then the only option would be to sell out the estate, which is indeed a huge loss to the entire family. That is why married couples are advised to purchase survivorship policies, which are specifically designed for estate planning and preservation.

In essence, if you have a lot of assets and you know very well that your heirs will be overwhelmed by heavy estate taxes, then you are the right candidate for survivorship insurance. In other words, the second-to-die life insurance is used by couples in estate planning. The aim is to protect the inheritors from the burden of estate taxes. As such, the importance of this type of life insurance is that the death benefit can be used to offset inheritance taxes once the last parent dies.

Second-to-die life insurance is a sure way for married couples to offer financial protection to their loved ones. These policies are different from the traditional life insurance policies in the sense that they cover only two people, usually married couples.

The other difference is that the death benefit is paid out only after the surviving spouse dies. So, the designated beneficiaries cannot receive any cash value until the surviving policyholder dies. This is one of the demerits of the survivorship policy.

Pros of Second-to-Die Life Insurance

There are several reasons why people may choose to go for second-to-die life insurance. These are outlined below:

Less Expensive

Survivorship policies are usually cheaper as compared to individual life insurance policies. Especially if you have a large estate, you are likely to enjoy low premiums. Typically, premium rates are much lower than those of individual policies simply because the benefits are never released until the two policyholders are no more. So, if you are looking for an affordable type of life insurance, a second-to-die policy is your best bet.

Estate Protection

If you have more assets than liquid cash, then a survivor policy is all you need. This helps prevent your children from struggling to pay off estate taxes after your death. Remember they can even be forced to sell out those assets they inherited from you just to pay off the estate taxes. But with a second-to-die policy, you are certain that all the debts will be cleared upon your death and that of your spouse.

Lenient Underwriting

There are few requirements since two people are being insured with this type of policy. This is good because you will still qualify for the second-to-die life coverage even if you or your spouse has some health problems. So, it is a good alternative if you have previously been rejected due to health issues.

You are maintaining an Estate

Most people purchase survivorship policies to make sure their estate transfers to their heirs remain intact. Even when you are on the other side of life, you do not want to hear a situation whereby the assets you left behind were sold to pay off debts. Instead, you want the property to remain intact so it can be transferred from generations to generations. So, you want to buy the policy to ensure there is enough cash to pay for such estate taxes.

Cons of Second-to-Die Life Insurance

Even though survivor policies work pretty well in many situations, they are not ideal for everyone. Especially if you do not belong to the class of tycoons with huge assets, definitely this policy is not for you. Below are a few cons of second-to-die life insurance policy:

Not the Best for Income Protection

If you intend to use life insurance for income replacement for your loved ones, the 2nd to die policy is not the best option. If, for instance, you are the main breadwinner and you die, nothing will be paid to your family until your spouse dies. When it comes to this point, survivorship policies lack meaning, and that is why most people opt for term life coverage as an alternative.

The issue with Premium Payments When One Partner Dies

The controversy arises when one spouse dies, and the surviving one is unable to keep up with premium payments. When buying this type of policy, ensure both of you can afford to pay premiums; otherwise, the policy will lapse. You should weigh the financial muscles of you and your partner before purchasing the policy

Marital Changes can Impact Premium Payment

As you already know that survivorship policies are purchased by married couples, the worst can occur if they happen to divorce. Note that if marital changes occur the policy will remain intact. So, if a couple had purchased the policy and later decides to divorce, the policy remains in place, and premiums have to be paid as usual. The surviving spouse may decide to remarry, and therefore the newly married spouse may not be happy since the policy does not cover his or her heirs. This, therefore, may bring about misunderstandings and the policy is likely to lapse.

Cash Value Growth is not the Focus

Many people purchase individual life insurance policies so they can take advantage of cash value accumulation. They always want to cash out the accumulated amount or take a loan against it. But with second-to-die policies, the focus is not cash value build-up, but rather you are looking forward to having a huge death benefit that can cater to estate taxes.

Is Second-to-Die Life Insurance Worth It?

2nd to die life insurance is a specialized coverage, unlike the individual policies. When looking to buy life insurance, there is a myriad of options out there. Remember each of the life insurance products has its pros and cons. So, it is your responsibility to weigh the merits and demerits of each option so you can pick on that suits your needs best.

When it comes to second-to-die life insurance, many people get stuck not knowing whether or not to purchase the policy. Since this policy is designed for married couples, the issue of whether to buy or not arises. This is because many marriages are not stable, and therefore they have the fear that breakup can bring controversial in the joint policy.

However,  it is important to understand that this policy is for the benefit of the heirs. A policyholder will not benefit at all because they cannot cash out anything or take loan against the accumulated cash. The death benefit only goes to the beneficiaries, and this happens after the death of both policyholders. So, if you are torn between buying a second-to-die policy or not, know that it is for the benefit of your loved ones.

Purchasing a survivorship policy can only make sense if you own huge assets. Although the policy offers income protection to your family, it is specifically designed for estate protection. If you die and leave a valuable property to your children without any form of insurance, the chances are that the property will be sold to offset estate taxes. But if you purchase a second-to-die policy, you will be certain that your assets will remain intact.

So, is survivorship policy worth it? Yes, a second-to-die life insurance policy is worth purchasing, especially if you have larger than average estates. This is the only sure way to protect your assets when you die. But if you have preserved your wealth in the bank as cash, no need to go for a survivorship policy. Instead, you can opt for the typical individual policy. Also, since survivorship policies are less expensive than individual policies, it is a good idea since you will receive a tax-free death benefit.

Summary 

The market offers a myriad of life insurance products, but none of them suits all needs. So, it is important to stay informed and educated when it comes to various life insurance products. The second-to-die life insurance policy is among the many life insurance products you can find in the market today. Just like term life, survivorship policy is meant to provide financial support to those people designated as beneficiaries. Specifically, this policy is meant for wealthy families that are looking to alleviate the huge estate taxes.

Before opting for a second-to-die life insurance policy, you need to think twice. First of all, consider assessing your net worth. This should not be in terms of money you have in your bank account, but rather the assets you are likely to leave behind when you die. Obviously, the assets will have to be transferred to your heirs.

The danger here is those huge estate taxes that will be levied on your estates afterward. If there will be no alternative source of income, your inheritors will have to sell out the assets in order to offset the taxes. So, there is a need for a survivorship policy to help clear such debts.

On the other hand, if you do not have a lot of assets and your aim for buying life insurance is to offer financial protection, then an individual life insurance policy is ideal for you. For example, with a normal term life policy, you will be certain that your beneficiaries will get a lump sum as a death benefit. Unlike the survivorship policy, you will be covered individually, and therefore the chances of your policy lapsing are incredibly slim.

2nd to Die Life Insurance Quotes

If you’re looking for 2nd to die life insurance quote, you’re at the right place. CFAinsure shops around with all of the life insurance companies on the market to get you the best life insurance rate out there. We do all the comparison shopping on your behalf, at no extra cost to you. Give us a call today for a no obligation consultation.

About Jason Hill
About Jason Hill

Jason is the founder of CFAinsure. His years of experience in the business have helped him serve and represent hundreds of clients. Jason ensures his clients are well educated and informed by putting their needs first. Each appointment is tailored to individual needs, via specific materials and educational tools. The real benefit for his clients is the end result: peace of mind.

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