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Survivorship Life Insurance: What You Should Know

A survivorship life insurance policy covers two people on a single life insurance contract. Also called a second-to-die life insurance policy, these policies pay the benefit amount after the second insured dies. Survivorship policies appeal to consumers because they are less expensive than buying two single policies for one household or under any circumstances where the named insureds share assets and financial goals.

Key takeaways:

What is survivorship life insurance?

Many of us journey through life with a significant other with whom we share mutual goals, a family, assets, and much more. When considering the inevitable life changes, many of us are not alone when planning for the future. Survivorship life insurance is joint life insurance that covers two people who may share assets, financial goals, and beneficiaries on the same life insurance policy.

Survivor life insurance, also called second-to-die life insurance, pays a death benefit to the beneficiaries after both insured pass away. Usually, married couples purchase survivorship insurance for estate planning, yet these policies may also be helpful for personal and business reasons.

The difference between a joint life policy and a survivorship policy is how the policy is arranged to pay the benefit amount. A joint life policy may pay the benefit when either insured passes away. A survivorship policy will only pay the benefit after both insured have passed.

How many lives does a survivorship life insurance covers?

The characteristics that separate joint life and survivorship life insurance from other life policies are how they are arranged. A joint life and survivor policy covers two people who may be business partners, married, or share assets and joint financial goals. Business relationships may require funds from a joint life policy to purchase the business, and married couples may use it for estate planning.

A joint life and survivorship life policy follows the rules of traditional policies in that the policyholders and beneficiaries must have an insurable interest. Business partners, significant others, and the policy's beneficiaries must show they will suffer financial loss if the insured dies.

When does the insurer pay the death benefit?

Survivorship life insurance is also known as second-to-die life insurance because both insured must pass away before the policy pays the death benefit. Typically, one person dies before the other. The policy pays the benefit amount after the surviving insured's death. The two types of joint life insurance policies are first-to-die, survivorship, and second-to-die.

A first-to-die joint life insurance policy pays the benefit when the first insured dies. These types of joint life policies are most commonly used in business partnerships. In this case, the surviving business partner can use the proceeds from the policy to purchase the deceased partner's share of the business.

In a survivorship life insurance or second-to-die policy, the death benefit is paid to the beneficiary or beneficiaries after the second insured dies. Survivorship policies are most popular with married couples. These life insurance contracts are helpful in estate planning because estate taxes and settlement costs are due upon the second spouse's death.

How are survivorship life insurance policies useful?

Life insurance helps shoulder the loss of the insured by providing money to the policy's beneficiaries upon the insured's death. Survivorship life insurance is often purchased to provide a large benefit amount while maintaining less expensive premiums than two individual policies. Premiums are the insurance costs, which may be paid monthly, quarterly, annually, bi-annually, or in one payment. Usually, the premiums to insure two people on a survivorship policy are less than for two single policies, which would name each individual as one of the beneficiaries.

Most survivorship policies are whole-life, permanent policies that last the insured's lifetime and accumulate cash value as the policy matures. Policyholders may borrow the cash value from survivorship whole life insurance policies. At the same time, they remain in force, as opposed to term life insurance policies that terminate or must be renewed at the end of the named amount of time and do not grow cash value.

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Because survivorship life insurance covers two lives, the underwriting process differs from an individual policy covering one life. Underwriting is the process premiums and insurability are determined. Because the policy covers two people, the risk of loss is lower than that of an individual loss. This allows for lower premium rates and more accessibility to people with health issues. Life insurance company underwriters will consider the lifespan of the younger and healthier person on the policy more than one with health issues.

Like any life insurance product, some are better suited than others. There is no one-size-fits-all life insurance policy, and survivorship life insurance is not an exception. For instance, if the surviving partner needs financial assistance after the loss of the first insured, a survivorship policy will not pay a benefit or replace income. Furthermore, the surviving spouse will need to continue paying the policy premiums after the loss.

It may also benefit young, healthier individuals to purchase less expensive term life products. Although term life products do not grow cash value, they are significantly less costly and terminate, as do some partnerships. The bullet points below simplify the pros and cons of a survivorship policy.

Although one venture may end, survivorship life insurance is designed to protect the legacies garnered during the journey. A survivorship policy helps to ensure the products of our lives may continue to grow while we are no longer there to offer support. Read our other Health News Articles to learn about other life insurance options and explore the best types of policies for you.

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