When I'm asked about term versus permanent life insurance, I often answer with the question, "Is the insurance for when you die or if you die?" While we're all going to die at some point, a need to insure that risk may not exist. In other words, if the insurance is for when you die, a permanent product make sense. If the insurance is for if you die (before some event occurs), then a term product can be a good fit.
Second to die life insurance, most likely, is in the when you die category. For example, when I die, there needs to be funds to support a special needs child. Or when I die, I want to leave a bequest for my children. But, a permanent life insurance product can be expensive. One of they ways to reduce that is expense is through a second to die policy. A second to die policy is normally written on a married couple and pays when the second spouse dies. As mentioned this can reduce the premium for a couple quite a bit, because there is a pretty good chance that one of you will live pretty long. As an example, here are some numbers from my financial planning software.
- A male in his 50's has a 30th percentile life expectancy (30 percent of his cohort will be alive) of 92
- A female in her 50's has a 30th percentile life expectancy of 94
- The 30th percentile for one of them to be alive is 97
By adding those 3 -5 years of life expectancy there is more time to pay the premium and thus the premiums can be lower (note this isn't exactly how the life insurance companies run the numbers, but it illustrates the point).
Often times second to die policies are Universal Life. Unique characteristics of Universal Life include the ability to vary the premium and tying the return on your cash value to an index (normally adjusted a bit). This can have plusses and minuses. You might be able to pay more premiums during your working life and prior to your ultimate retirement and pay less when your income goes down in retirement. By using an indexed policy, you may earn significant returns that could result in an increased death benefit (depending on the policy) or a reduced premium in the future. Conversely, if you pay too little up front or the index under-performs the illustration you could find yourself in a situation where you need to increase your premium or the policy will collapse. A good insurance agent/broker will monitor your policy and make sure this doesn't happen.
There is, of course, more to second to die policies than what I've written here. If you have a need or desire for one talk to a financial planner or a trusted life insurance agent.
Military Finances are Different
Second to die life insurance policies aren't unique to the military. But, your military status can affect your life insurance decisions. How should SBP factor into the decision? What about war clauses? Does the option of rolling over SGLI and the death gratuity into a Roth IRA change the calculations? These are questions an advisor or planner who doesn't work with current and retired military members will be figuring out for the first time. That's why we think you should work with financial planner/advisor who lives and breathes this stuff every day. Give us a call if you'd like to chat or schedule a meeting using the button below.
If you found this article useful, you might like the blog posts below:
Military Finances 101: 5 Things to Look for When Choosing a Life Insurance Policy