Military Finances 101: Survivorship Life Insurance

About 60 percent of Americans hold some form of life insurance.¹ Weighing different life insurance policies is an important consideration for married couples. As you undergo your estate planning process, it’s vital to consider a life insurance policy that will suit your unique circumstances. 

How Does Life Insurance Work? 

Life insurance ensures payment to beneficiaries should the insured individual pass away. Married couples have the option to either choose a separate insurance policy, which covers each spouse individually, or a joint insurance policy, which insures both parties. 

Of the joint insurance policies, there are two types: first-to-die insurance and survivorship life insurance. 

What Is Survivorship Life Insurance? 

Survivorship life insurance, also called second-to-die life insurance, requires the death of both spouses in order to pay out the death benefit. 

Typically, these are permanent life insurance policies, meaning that the policy remains in effect as long as the premium is paid.² When the first spouse passes away, the other continues to pay the premium. When the second spouse passes away, the death benefit is paid to the designated beneficiaries, typically their children. 

Advantages

Survivorship life insurance is a very unique type of life insurance policy, and it holds some unique advantages. 

• Preserves wealth for one’s estate & dependents
• Is an affordable (compared with separate, individual policies) 

Situations When Survivorship Life Insurance Might Make Sense:

This type of life insurance isn’t right for everyone; instead it’s best suited for very specific scenarios. 

Scenario #1: Special Needs Child 

If you have a special-needs child and your spouse are concerned about the well-being of that child once you both pass, survivorship life insurance might be a good choice. 

In this case, the funds from the policy can be used to fund a special needs trust or to provide for care for the child. 

Scenario #2: You’re Planning Your Estate 

This life insurance policy is specifically designed to maximize the value of your estate. If you want to leave assets behind for your heirs and help them avoid taxes, survivorship life insurance may be a good choice. Survivorship life insurance can be critical if estate taxes will due and the estate owns illiquid assets that would have to be sold a fire sale prices to pay the estate tax.

The point of the first-to-die joint policy is to payout the death benefit to the surviving spouse, aiding them financially. However, if you have a comprehensive financial plan and/or sufficient assets to provide for yourself even after your spouse passes away, you may want to consider survivorship life insurance. This is especially true if you have any children that are financially dependent on you. 

Note that when the first spouse passes away, the surviving spouse may be able to access cash value accumulated by the insurance policy—so they won’t be left entirely empty handed.

As you consider various life insurance policies, keep in mind the unique nuances of each policy. In general, couples in good health that are not planning an estate may want to look at different types of policies. The life insurance policy you choose should fit within your marriage, your finances and the specific circumstances of your family.

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