2nd to Die Life Insurance

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Second-to-die life insurance is the type of insurance plan that provides insurance coverage for two people, usually a husband and wife, the death benefit of which is paid out only until both insured parties have passed away. In summary, this means that the policy insures two lives and two deaths, but only one death benefit. This is not a very popular form of life insurance, and is most commonly used only to provide heirs with a means to fulfill estate tax obligations upon the death of parents.

That said, second-to-life insurance, also known as survivorship life insurance, is mainly recommended for wealthy couples that expect to leave behind a large estate that will incur hefty amounts in taxes and other estate settlement costs. This is to protect their heirs from having to pay such taxes, which may even end up in the liquidation of such assets due to the heirs’ inability to pay them off.

Advantages of Second-to-Die Life Insurance

  • Second-to-die life insurance provides heirs with the means to pay off estate taxes upon the death of parents so it ensures that the estate remains within the property of the family instead of being sold off to pay for huge inheritance and estate taxes.
  • These types of insurances usually have lower premiums as opposed to comparable individual life insurance for each spouse because the risks of an unexpected pay off is spread over the lives of two persons. Premiums on second-to-die life insurance are on the average 25% to 40% lower than individual life insurance premiums.
  • Qualification measures are not as stringent on second-to-die insurance compared to individual life insurance. It even allows coverage for a person who would otherwise not be insurable due to some specific reasons like a critical pre-existing medical condition, or the like, only because they are also banking on the life expectancy of the other person insured.
  • Second-to-die life insurance also offers the option of being converted into individual policies at a later date when desired.

Other Reasons to Get Second-to-Die Life Insurance

  • Survivorship life insurance could also be used to set up a trust for surviving children, especially if there is one that needs special care throughout the course of his or her life. This gives the parents a certain peace of mind knowing that there is a means for the child to be cared for even at their demise
  • Second-to-die life insurance is also used by some couples to get around the un-insurability of one spouse due to standard life insurance conditions, or to pay lower premiums for a spouse who may incur high premium payments due to some medical condition
  • Philanthropists take out survivorship life insurance to set up funds for their favorite charitable institutions. This is more so when a person is not able to shell out a huge lump sum amount during his or her lifetime, so he or she instead pays out lower amount premiums to build up the fund that will be paid out upon his or her demise
  • Not only spouses take out second-to-die life insurance. Business partners can also be insured jointly under such policy to cover for their business financial needs upon their death and to ensure succession planning

Irrevocable Life Insurance Trust

To fully maximize the benefits of a survivorship life insurance, it is important to integrate it with a comprehensive estate plan under the management of a reliable estate planning advisor. Such consultant will be able to tell you the best among various options of second-to-die life insurance plans that will fit in with your needs and goals.

Financial advisers will usually suggest creating an irrevocable life insurance trust to be the owner and beneficiary of the insurance policy; the trust beneficiaries are then the couple’s children. This way, the policy will be excluded from the couple’s estate and will be exempt from estate taxes at payout if proper arrangements are made. To pay the premiums on this policy, the couple can make annual exclusion gifts toward the trust. The key thing to note here is that the couple gives up their right to the policy in favor of the trust. It is because of this that one should have a trustworthy executor to handle the nitty-gritty details of the arrangements.

Second-to-die life insurance is really no different from single coverage life insurance plans. Whether couples choose to take out joint insurance or individual insurance really depends on their needs and financial standing, but the bottom line is that couples only want to leave their surviving children with a bit of money in case of a sudden onset of death. And the earlier they do it, the better because then life insurance premiums will not yet take out a huge chunk of their budget.

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