Survivorship Life: Leaving a Legacy for your Heirs
Survivorship Life Insurance is a special type of policy in which two or more people are insured on the same policy. Benefits are paid when the last named insured person dies.
Survivorship insurance can be term, whole or universal life. This type of insurance, also known as Second-to-Die, is not common as it will not pay until the final insured person dies, and it is nearly impossible to change it once the first insured on the policy dies. Under certain circumstances, however, it can be useful.
- Paying estate taxes after death: People who are wealthy and have made provision for final expenses such as funeral costs sometimes have no need for individual life insurance or burial insurance. Their heirs, however, may need a tax free way to pay estate or inheritance taxes on a large estate. Since a will can be set up which transfers everything to a spouse when one spouse dies—or since the property can be jointly owned with a transfer on death clause, the surviving spouse will not usually be affected by such taxes. However, the heirs have to pay all taxes before the estate will be released from probate. A survivorship policy can accomplish this.
- Leaving a Legacy: Some people prepay their funerals and do not have a large enough estate to be subject to estate or inheritance taxes. Instead, the last person to die—such as a parent—may want to leave a windfall to the children or grandchildren. Also, people who have been helped by a favorite organization such as a college or charity, sometimes like to leave a bequest. A Survivorship policy is a good option.
- Protecting a business: If life insurance is used to protect a business, the receipt of benefits may be most critical when the last owner or partner dies. This would allow the beneficiary to keep the business going and pay any outstanding debts or expenses.
If you are interested in Survivorship Life insurance, you may want to try another slant. Some companies offer a special type of life insurance called Single Premium Whole Life. In this kind of insurance, a person simply moves a sum of money from a CD, existing savings account, or from a retirement account (income taxes due on the retirement have to be paid first) into the policy, purchasing a much larger face value. For example, if a person is in his / her mid-fifties, the face value may be more than double the initial investment. The policy is usually considered "paid-up" with no additional premiums required.
If your company offers Single Premium Whole Life, ask if it is available in a Survivorship Life Policy. If it is, you can create your desired legacy by simply moving some of your assets into it and will have no monthly premium to keep track of.