Second-to-die or survivorship life insurance is a permanent life insurance policy that has two people insured under the same policy, in most cases, a husband and a wife though it can also insure two siblings, a pair of business partner or a parent and child. The benefits are released to the beneficiaries once the last surviving spouse passes on. It is popular among parents as it allows them to focus particularly on their children.
Why Buy Second-to-Die Life Insurance?
This life insurance policy is often bought by couples who foresee a huge estate tax responsibility in the future because of their larger than average estate. Additionally, these policies are less expensive than purchasing an individual and separate life insurance policy and so it is a wise move in order to benefit from tax-free death benefits.
So how does a couple establish whether to buy this insurance? If a couple’s estate is worth between $1 million to $5 million or even more, it might be a good idea to consider this policy.
Benefits of Second to Die Life Insurance
One, with a single permanent policy, two lives are insured for a cost that is less than what it would cost to purchase two individual policies. Furthermore, the rates are also lower compared to an equivalent policy that insures two people. However, this policy does not build the cash value and the benefits are not released until both of the insured people die.
Two, it is after the second death that capital is secured to preserve the estate’s or business’s value. Three, in the case of children with special needs, the costs of the special care-giving continues to be catered for after the parents pass on. Four, it enables one generation to secure its hard-earned gains so as to benefit the next generation.
Tax Benefits of Survivorship Insurance
Once both people die, the federal estate taxes become due and if there was no proper planning, this becomes a costly oversight. This is because estate taxes in the last decade have been between 30%-50% of the estate value in the time of death. However, the current law allows for the deferral of a person’s estate tax until past the second death. When the second partner passes on, the heirs have two options. One, they can liquidate a part of the assets from the estate. Two, they can borrow money with the estate value as collateral.
The best solution is for both spouses to purchase Second to Die Life Insurance policy. The policy allows the beneficiaries to pay the federal estate taxes as well as administrative costs using the proceeds from the policy. Contact Doug McClure at Global Investment Strategies for more details.