When a married couple is looking to purchase insurance policies, there are two ways they can do this. They can either buy a joint policy or a separate one. While some couples may be able to get individual plans, some opt for a joint life insurance policy. A survivorship life insurance policy is one such policy. Also known as a second-to-die policy, it can make the shopping process for life insurance very easy for couples. 

What is survivorship life insurance?

It is a kind of joint life insurance whose death benefit pays out when the policyholders pass away. This policy often covers more than one person, mostly couples, and is dubbed second-to-die because the benefits are paid out when the second policyholder passes on. 

The main reason why it was devised is to assist in estate planning. The law allows for a spouse to leave behind unlimited assets to the other spouse without federal taxes getting incurred. However, the other beneficiaries do not benefit from this. With the survivorship life policy, assets can be left to the recipients with a death benefit that covers the estate tax.

Types of survivorship policies

There are various kinds of life insurance, and survivorship insurance policies can borrow from several of them. They fall into two categories:

Term life insurance: in this, the insurance has a set term that spans between five to thirty years, and there is no cash value benefit.

Permanent life insurance: this one goes on as long as the policyholder keeps covering the premiums. Additionally, it boasts of a cash value benefit.

Survivorship life insurance policies based on term life insurance are rare, with very few insurance companies dealing in them. On the other hand, in permanent life insurance, there are several options:

Whole life: There is a cash value, and it goes on as long as the policyholder keeps paying the premiums.

Variable life insurance: This is another kind of permanent life insurance that has a cash value but is invested by the company selling the policy.

Universal life insurance: In this permanent policy, there is a cash value and it allows for the death benefits and premiums to change.

Survivorship Life Insurance Payout

The death benefit is doled out when both of the policyholders pass on. However, they don’t necessarily have to die at the same time so that the policy can payout. 

In conclusion, talk with a licensed insurer or a financial adviser before you settle on one type of insurance policy as it will depend on your financial situation.