Most often, this type of insurance is used as an estate planning tool. Substantial estate taxes are always applied to people’s estate when they die. These are called estate taxes. Upon the death of the second remaining insured person, the death benefit will be paid. This allows for the ability to pay the estate taxes through the means of the award amount. Other expenses may be able to be covered as well but it comes down to the amount of coverage that is taken out for the policy itself.
Insurance as an Investment in the Future of your Spouse
In cases where one of the spouses is in less than perfect health, survivorship insurance can make a lot of sense. Because it's a combination policy, the premiums will remain low as long as one of the spouses is in good health. Individual policies for the person of ill health would be incredibly expensive, too expensive to bear in some cases. Because the death benefit doesn't get paid until the healthiest spouse dies, the premiums can remain low and not adversely affect the insurance company.
Usually, these policies are available in whole and universal coverage forms. Whole and universal survivorship life insurance policies are pretty much guaranteed to pay out after the death of the second insured. Survivorship insurance policies were designed in the 1980's, after a law was passed that allows married couples to avoid estate taxes until both spouses pass away.
Is a Survivorship Life Insurance Policy Worth It?
Here are some of the advantages of a survivorship life insurance policy:
It's Less Expensive
This kind of life insurance is not as expensive as single life insurance policies. Because an insurance company doesn't owe anything until both spouses die, the premiums are a lot lower.
Easier To Qualify
Often times, insurance companies will write a survivorship insurance policy even if one of the spouses aren't in good health. The fact that the healthiest spouse has to die as well makes the insurance companies less concerned with who goes first.
Great To Use As An Estate Builder
Estate building is a popular option people use with this type of insurance. It can cover the cost of the estate taxes and leave a sizable amount for the beneficiary after all the taxes have been paid. A minimum amount of money can be guaranteed to the beneficiary.
Great For Preserving The Estate
Preserving the estate and ensuring that the estate taxes don't overwhelm the beneficiary to the estate is of utmost importance. The fact that survivorship life insurance can be acquired with such a high amount of coverage makes it very attractive for using it in this regard. With a lower premium amount than insuring each person individually, it makes perfect sense.
Variable Insurance Like Universal Survivorship Life Insurance Gives You Options
The insurance policy can be taken out in universal form. The premiums you pay into the insurance company can have a portion go into a separate account that will earn an amount based on market conditions.
In certain circumstances, the survivorship life insurance policy can be split into two separate insurance policies. The specifics of the policy along with the terms and conditions should be reviewed to see if such an option is possible.
Survivorship life insurance is almost always associated with whole life insurance policies. Meaning, the insurance coverage covers both insured people for the entire length of their lives, with an award amount guaranteed if the terms and conditions of the insurance policy are followed correctly. This means that all health considerations must be met according to the underwriter, all premiums must be paid in full and on time and any other inclusions mandated by the insurance company must be followed as well.
Be Careful Who You Do Business With!
Finding the best rate on survivorship life insurance must be done carefully. If you choose to do business with a less reputable insurance company, one without a track record of paying the award amounts to their patrons, then you run the risk of losing everything you put into the policy. There are a lot of fraudulent insurance companies out there and these companies will promise you a genuine policy. You have to be aware of these insurance companies history of award payments before you risk doing business with them.
Always choose to go with an established insurance company over a fly by night operation. Why risk it? Established and well funded insurance companies who have made timely award payments to their patrons are much better suited to help you. It simply isn't worth the risk to save a few dollars, when in the back of your mind you fear losing it all. Choose your insurance company wisely and only after thorough research.