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Published: Sep 20, 2023 13 min read

When you are looking for life insurance, there are a lot of factors to consider. One of the most important is the people who depend on you —who you’ll want to name as beneficiaries of the policy. Potentially just as important is whether you want the policy to cover one or two people. Survivorship life insurance, in which two individuals are covered by the same policy, can offer peace of mind for everyone from married couples to business partners.

Depending on your situation, a survivorship policy might be the best life insurance for your needs. It can help simplify estate planning and make things easier for those you leave behind. However, there are still a lot of options when deciding how to handle survivorship life insurance, and to make the right choices you must understand what survivorship insurance is and how it works.

Read on for a comprehensive guide covering survivor life insurance.

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What is survivorship life insurance?

A survivorship life insurance policy — also known as a second-to-die policy — covers two individuals jointly. Both people, who are often spouses but don’t have to be, are insured under a single policy. This can be helpful in a few ways, including less expensive premiums due to lower risk for the insurer. It can also be helpful if one of the joint policyholders would have been otherwise uninsurable for some reason.

Second-to-die life insurance generally pays out more than an individual life insurance policy. It can equate to a larger, tax-free inheritance for your beneficiaries or possibly guard your business and legacy against financial difficulty after you and your partner have passed away.

In a survivorship life policy, when does the insurer pay the death benefit?

The death benefit in a survivorship life insurance policy is paid out to the designated beneficiaries only after both of the joint policyholders have died. The beneficiaries will need to know that the policy exists and have the proper documentation to prove that both policyholders have passed away.

How are survivorship life insurance policies helpful in estate planning?

Since a survivorship policy pays out only after both individuals have passed, it can help cover the costs of transferring an estate, including estate taxes. If you are wealthy enough to face the prospect of estate taxes or inheritance taxes, it could offer a way to provide a tax-free inheritance to your beneficiaries.

Second-to-die insurance can particularly benefit high-net-worth couples or business partners who want to ensure their families can keep the business. You can even leave the survivorship benefit to a charitable organization you both care about.

Types of survivorship life insurance policies

The two main types of survivorship life insurance policies are traditional survivorship life insurance and variable survivorship life insurance. Both have their benefits, but you need to consider them carefully to know which is right for you.

Traditional survivorship life insurance

Traditional survivorship life insurance is typically sold as either survivorship whole life insurance or survivorship universal life insurance. These are both permanent insurance policies, but insurance companies administer survivorship whole life and survivorship universal life insurance policies differently. Both accrue cash value over the life of the policy, but only survivorship whole life insurance has a guaranteed cash value. In contrast, a survivorship universal life policy's cash value will depend on investments and market factors.

Yet another, less common option is second-to-die term life insurance. As with any term life insurance policy, a second-to-die term policy has an expiration date, and because the time period is limited the premiums for these policies tend to be less expensive than permanent life.

If both individuals are still alive when second-to-die term life expires, the policy would end and no death benefit would be paid unless the policyholders renewed it or sought out a different policy. If one partner in a survivorship term life policy dies before the policy expires and the other is still alive, the term life policy simply ends without any payout.

Variable survivorship life insurance

Variable survivorship life insurance has some features in common with survivorship universal life insurance. The cash value of a variable survivorship policy can vary based on the investments made. The difference is in who is deciding what those investments are.

With a variable survivorship life insurance, the policyholder is in control of how to invest the cash value of the policy. This can be a perk or a pitfall, depending on the market and your investing decisions. You and your partner can choose investments such as mutual funds or bonds. If your decisions are the right ones, a variable survivorship life insurance policy could ultimately provide a much better death benefit. But there are risks when it comes to making any investing decision.

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Joint life vs. survivorship life insurance

A survivorship life insurance policy is not your only option for a shared life insurance policy. Joint first-to-die life insurance shares some of the benefits of survivorship (second-to-die) life insurance, but pays out when the first person named in the policy passes away.

First-to-die life insurance

First-to-die life insurance has some of the same benefits as second-to-die life insurance when it comes to insurability and premium payments. It is often much more affordable than other forms of life insurance due to the risk being split between both policyholders. Joint life insurance policies like these pay out when either policyholder passes away.

This can be a good option for business partners or couples who want protection for the other party if something happens to either of them. It can also be a more affordable means of ensuring financial stability than taking out two separate policies, and this kind of policy can be a particularly good option for couples with young families or a significant amount of debt.

A first-to-die policy can also protect your business partner, particularly in a small business where the loss will significantly impact the other partner's ability to run the company.

Second-to-die life insurance

A joint life and survivor policy protects your surviving beneficiaries in a number of ways. When weighing the options between first-to-die vs. survivorship policies, consider whether it is more beneficial to leave something behind for one another of the policyholders or for others.

If your partner can carry on financially after you pass with little difficulty, second-to-die life insurance may be the best option. However, you also need to plan for the surviving partner to continue to pay premiums after the other has passed away. This is one case where the difference between survivorship life policy vs. joint life policy premiums can be significant.

Why take out a survivorship life insurance policy?

There are multiple reasons you might consider taking out a survivorship life insurance policy. They’re not only more affordable than individual policies, but they can help ensure that the timing of your death benefit payout comes when it is most needed.

Estate planning benefits

A survivorship life insurance policy can provide a tax-free inheritance to your beneficiaries. Whether that means leaving a substantial sum to a charity or ensuring your heirs have enough money to keep the family business running, it can make a big difference when both policyholders have passed away. It also ensures that needed money is there when an estate changes hands, protecting both your legacy and your beneficiaries.

More cost-effective than purchasing individual life insurance policies

A survivorship life insurance policy can provide just as much coverage as two individual policies while costing less in premiums. The reduced risk to the insurer of having to pay out the death benefit and the added time the company has to invest your premiums and generate a profit make it possible to insure two people more inexpensively than one.

Protecting wealth for beneficiaries

The larger death benefit generally included in a survivorship life insurance policy can be a significant boon to your heirs. This is particularly true if you have a large estate. If you want to ensure that your heirs can inherit your estate as you leave it, rather than be forced to sell it off to cover final costs, a survivorship life insurance policy could be the right option.

Potential tax advantages

Death benefit payouts from survivorship life insurance policies have the same tax benefits as other life insurance policies. However, the death benefit tends to be much larger. In addition to the direct benefit of receiving a large payout without dealing with inheritance or estate taxes, beneficiaries can use the money to cover estate taxes on other assets.

The limitations of survivorship life insurance

While survivorship life insurance offers several benefits, it has some drawbacks. In particular, you should only enter into such a policy with someone you expect to maintain a relationship with for the rest of your life. So it may not be the best option for those who aren't sure they will still be together as a couple — or working together — years down the road.

Here’s what to keep in mind before opting for a survivorship life insurance policy:

No payout until both insured people pass away

Unlike individual life insurance policies, a survivorship life insurance policy won't pay out on one person's death. Of course, you can instead take out a (first-to-die) joint life insurance policy if you need the death benefit to be there for either party on the other's passing.

Both parties will be affected if the policy lapses

If you have any concerns about how the other person handles their responsibilities, you may not want to go with a survivorship life insurance policy. If your partner doesn't pay their share of the premiums, you could be stuck paying the entire premium yourself to keep the policy from lapsing.

The investment risks of variable survivorship life insurance

While variable survivorship life insurance can provide a larger death benefit with wise investments, it can also lead to disaster if not managed properly. If you are considering any form of life insurance with an investing component, you should talk to a qualified investment expert first.

Limited individual flexibility

As stated above, a survivorship life insurance policy is its own kind of partnership, one that is meant to last for the rest of your life. You cannot make any changes — including investment decisions — on your own.

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Summary of Money's what is a survivorship life insurance policy

Survivorship life insurance insures two individuals under one policy and only pays out once both policyholders have died. This kind of insurance is especially beneficial for estate planning and offering tax-free inheritances. It can also provide a substantial death benefit, safeguarding your legacy or family business.

Survivorship policies also have drawbacks, though. They don't pay out until both insured parties have passed, and every decision related to the policy is up to both policyholders. While the premiums are generally lower than two individual policies, the surviving policyholder must continue paying those premiums after the first policyholder passes away. Before choosing a survivorship life insurance policy or settling on a specific policy, make sure you have talked through every aspect of the decisions with your partner.

If you’re just getting started, check out our life insurance for beginners guide to learn more and make sure you understand everything you need to know to make the best decision for your family.

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