The loss of a loved one tops most "life's hardest events" lists. In addition to the grief, pain and sorrow family members feel, they also often experience anxiety and fear about the future.
While your family will never truly be prepared to lose you, you may be able to help them deal with their grief.
Whether your goal is to leave a legacy, provide for your family, or ensure your assets are distributed according to your wishes, here's some advice:
Walk through the estate and financial planning processes with your loved ones so they're not left guessing.
If you're ready to take this planning journey with your spouse, life insurance is a helpful tool you can use. While traditional life insurance that covers one individual is best for most scenarios, there is a type of life insurance that covers two individuals. It's known as survivorship life insurance.
How survivorship life insurance works
Survivorship life insurance, also known as second-to-die or joint life insurance, covers two people — usually spouses or partners. It provides benefits to the couple's beneficiaries only after the second person dies and is usually less expensive for couples than if each were to buy an individual policy.
How do these policies differ from traditional life insurance? With a regular insurance policy, the spouse or partner is typically named as the beneficiary and receives a payout after their partner's death. With survivorship life insurance, the survivor doesn't receive any benefits from the policy when their loved one dies. Instead, the benefit is paid out to the couple's beneficiaries after the surviving spouse dies.
When should I consider a survivorship life insurance policy?
You can use a survivorship life insurance policy to accomplish several goals:
- Estate planning. It's often used as an estate-planning tool for high-net-worth couples. Since the policy only pays out after both policyholders die, the death benefit can help cover the burden of estate taxes and leave a legacy for heirs.
- Cost savings. Joint life insurance is typically less expensive than the combined premiums on individual policies on each person — in part because the life insurance company is spreading out the risk.
Also, if one person has a health concern that might lead to high premiums and the other person is healthy, survivorship polices can help create a more cost-effective life insurance portfolio. - Financial support for dependents. Parents who have a special-needs child may want lifelong care for their child, even after both parents die.
A joint policy can provide that financial support. For example, the death benefit from a survivorship life insurance policy can be used to fund a trust designed to pay for living costs and medical expenses. - Protection for business owners. Survivorship life insurance can also be useful for business partners who want to be sure their business is protected if something happens to both partners. The policy can provide money to buy out their shares of the business, allowing beneficiaries to have the liquidity needed to manage business affairs and transfer ownership.
When should I avoid a survivorship policy?
Joint life insurance policies aren't for everyone. These may be some drawbacks.
- One death benefit. If you and your partner are both healthy and can afford the premiums for two insurance policies, separate policies may be better. Separate policies will yield two separate death benefits, offering more flexibility and protection.
- Your spouse or partner can't be a beneficiary. If you want to use life insurance to support your partner or spouse after your death, you'll need to get an individual life insurance policy. Survivorship policies only pay out after you both die, so the person who dies second won't get any financial help from the policy.
- Lack of flexibility. If you and your spouse separate or divorce — or if there are other major life changes — you might not be able to split a survivorship policy. However, your life insurance company may offer riders at an added cost to cover these situations.
Key takeaways
You and your partner or spouse have many factors to consider as you weigh your life insurance options, and survivorship life insurance can be useful in specific situations.
Assess your needs before deciding whether second-to-die or individual life insurance works best for you.
Remember, it can be helpful to work with a licensed life insurance specialist, who can answer any questions and make recommendations.
Survivorship life insurance may be right for your needs.
Have questions?