Do You Need a Survivorship Life Policy?

In this article...
  • Find out what a survivorship life policy is and how it compares to other joint insurance. Learn who is most likely to benefit from survivorship life insurance.

If you're married or in a domestic partnership, you have the option to take out life insurance separately or get coverage under one policy. A survivorship life insurance policy provides one way for two individuals to get coverage together and may be the best type of coverage for you depending on your financial goals.

What Is Survivorship Life Insurance?

Survivorship life insurance is a policy taken out on two lives instead of one. Like other types of life insurance, the policy provides a death benefit to your named beneficiaries in exchange for your payment of monthly premiums. The policy pays out the death benefit after both the insured people die. As a result, this type of life insurance is sometimes called second-to-die.

Who Can Take Out Survivorship Life Insurance Together?

You can obtain survivorship life insurance with anyone with whom you own assets. That person could be your spouse or domestic partner. Business partners may also buy survivorship life insurance together.

What Is the Purpose of Survivorship Life Insurance?

The purpose of survivorship life insurance is to pay a death benefit to shared beneficiaries when you and another person die. It can simplify life insurance by allowing you both to get coverage under one policy, and often, survivorship life costs less than two separate policies.

You may benefit from survivorship life if:

  • Your heirs will likely need to pay estate taxes. If you are going to pass on a large estate, your children or other heirs may have to pay estate taxes. A survivorship life insurance policy can provide them with the money needed to pay all or some of those taxes so that they can keep more of their inheritance. Payouts from a survivorship life insurance policy are usually not taxable.
  • You have a dependent who will need lifelong care. If you and your partner have a disabled child or another adult dependent who will need help throughout their lives, a survivorship life insurance policy can ensure that money is available to pay for care when both of you are gone.
  • You wish to support a charitable organization. You can name a nonprofit organization as the beneficiary of your policy to make a large charitable gift after you both die.
  • You need a succession plan. You and your business partner can use a survivorship life insurance policy to provide money to the person or people who you want to take over your company when you are both gone. The beneficiaries can use the money to purchase your shares of the business.
  • One of you is in poor health. The underwriting process is sometimes relaxed for survivorship life. A life insurance company may be willing to accept someone with medical problems who would otherwise not qualify for coverage under a survivorship life insurance policy because the payout won't occur until both parties die.

What Is the Difference Between Joint Life and Survivorship Life?

Joint life refers to any type of life insurance policy taken out on two lives instead of just one.

Insurance companies generally offer two types.

  • First-to-die life insurance pays out when one of the people on the policy dies. This type of life insurance is beneficial for dual-income families. Business partners can also use first-to-die life to take full ownership of the company if one of them dies.
  • Survivorship life insurance pays out when both people on the policy die.

Types of Survivorship Life

Two types of survivorship life insurance are available.

  • Term life policies last for a limited period. If one or both of you are alive at the end of the term, the insurance expires.
  • Whole life policies are permanent insurance that remains in place until both of you die. Most survivorship whole life policies build up a cash value that the two of you can use as collateral for a loan or cover expenses while you're alive. Normally, whole life has higher premiums than term life.

Are There Any Drawbacks to Survivorship Life Insurance?

Survivorship life insurance does have some drawbacks that you need to be aware of.

You and Your Partner Will Never Have Access to the Death Benefit

The insurance company won't pay the death benefit on survivorship life until both of you die. If your death would cause financial hardship for your spouse or vice versa, a first-to-die joint life insurance policy is a better option. Alternatively, the surviving spouse may be able to use any cash value in a survivorship whole life policy to cover expenses. Usually, this would decrease the death benefit of the insurance.

Death Benefit Claims Will Take Longer

Insurance companies may take longer to process death benefit claims on survivorship policies. You may want to take out separate burial life insurance policies that provide quick payouts upon your death so that your beneficiaries have money to settle your final expenses.

Complications of a Divorce

If you part ways, your divorce settlement will have to specify what happens to your life insurance. Determining what to do with the policy could cause the divorce to drag on for longer, resulting in higher attorney fees and court costs.

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