What is Survivorship Life Insurance?

Survivorship Life Insurance insures two people and pays benefits only when both insured policyholders pass away.

It is generally designed to provide funds to pay estate taxes. Also called second-to-die life insurance, “joint and last survivor,” and “last-do-die” insurance. The policy proceeds become available at the second death when estate tax and estate settlement costs may cause an excessive financial burden.

Since real estate taxes are based upon the total current value of all assets (liquid or not), Survivorship Life Insurance can protect family estates such as real estate, property, family farms, and other hard assets from liquidation. Survivorship Life Insurance protects larger estates, generally $5 Million or more fabulous.


Survivorship Insurance policy premiums are based upon the risk involved in the insurer having a monetary loss due to paying out claims. This risk is based on statistics. For example, a person with known medical problems (such as high blood pressure) is statistically more likely to suffer death earlier than a healthy person without such a condition. Therefore the insurance companies’ cost to provide life insurance coverage for the medically impaired person is higher.

Since this type of Insurance policy benefits only after both the person dies, it is important to have Life Insurance individually. So that when one person dies, the policy could benefit the second person.

Two main benefits come of Survivorship Life Insurance are:

  1. Because there is less risk for the insurer when the death benefit is paid after the death of two people, the cost of the policy (the premium) is less.
  2. There is less financial risk for the insurer, so those with medical or other impairments that would normally be rated (or possibly declined) can get approved (depending upon the health of the other applicant).
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So, the risk is spread over two lives resulting in lower policy costs. Survivorship life insurance can be less costly and more accessible than other types of life insurance.

Survivorship policies are typically designed to offset the monetary costs of estate taxes. Estate taxes can reach levels as high as 55 percent. A bill was enacted in the early 1980s that allowed the postponement of estate taxes until the death of the second spouse. Survivorship life insurance policies are used to offset the financial burden of estate taxes after the death of the final spouse.

A safe last-to-die policy should be owned by a third party (typically a trustee).

The ultimate goal of estate planning is to acquire and preserve someone’s assets past death. Several significant decisions must be taken:

Who are the beneficiaries?

How can you reduce or eliminate administration costs?

How can taxes be reduced or eliminated?

There are two major common ways to start the estate planning process. Either the creation of a will or the creation of a trust. Both are designed to determine who is the beneficiary of specific assets. But the similarities end there. For more information on trusts or wills, contact a lawyer or certified accountant.


Taxes Imposed on the Transfer of Assets

Three taxes are imposed on the deceased’s assets: estate tax, gift tax, and generation-skipping transfer tax.

A gift tax is a tax that is imposed during the lifetime of the giver. Unlimited gifts may be given to a spouse or charity without tax. And gifts of less than $10,000 per year may be given without taxation. The tax rate on gift taxes ranges from 37% to 60%. But an applicable exclusion is satisfied before taxes are required. The applicable exclusion is a specific amount of money depending upon the year. Currently, in the year 2000, the excludable amount is approximately $675,000. This amount will rise each year until it reached $1 million in 2006.

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The estate tax is imposed upon death, but in the event of a married couple, it is not imposed until the death of both parties. The estate taxes are based upon the total current value of all assets (liquid or not) after all appropriate expenses and asset transfers.

The Generation-Skipping Transfer Tax is imposed both at death and during the lifetime of an individual. This tax is at 55%. A decedent (the person transferring assets) has a lifetime excludable gift of $1,010,000. This tax and exclusion are applied to gifts for grandchildren or relatives further down the family tree (i.e.. great-grandchildren). Transferring assets to the next generation more significant than the allocated amount may also be subjected to an estate tax if the gift is at death.


Types of Survivorship Life Insurance Policies

Survivorship Life Insurance policies add special beneficiary provisions to the regular non-term Life Insurance policies: whole life, variable life, and universal life.

The common link between these three policy types is that they develop a cash value. Policies that develop a cash value are commonly referred to as permanent insurance. permanent policies provide a death benefit as well as an investment component. The investment can be borrowed from or even withdrawn to fund retirement. Several survivorship life insurance plans allow up to a 10 percent withdrawal annually without the policy surrendering itself.

Whole Life Insurance

Whole life insurance, by definition, has a fixed premium (premium never changes) and an accumulating cash value. The cash value is designed to increase to age 100, which equals the death benefit. The cash value can be borrowed against and is received even if the policy is canceled due to non-payment. Whole-life policies do not have to be renewed or converted. There are several variations of whole life: limited pay, modified premium, and graded premium. The only significant differences are in the way the premium is paid.

Variable Life Insurance

Variable Life is an interest-sensitive form of insurance. The goal behind variable life insurance is to create a product that combines the protection of life insurance with the growth potential of common stocks. This type of policy is similar to whole life because it has fixed premiums. Variable life policies have a minimum guaranteed death benefit. However, the actual death benefit will vary based on the market conditions of the investment chosen. Typical variable life investment mediums are stock funds, bond funds, real estate funds, or any combination. There is no guarantee of the cash value of the policy because it is based on market growth. As with whole life plans, there are usually provisions that allow the cash value to be borrowed against.

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Universal Life Insurance

Universal life insurance is the most flexible type available. Its purpose is to combine term insurance protection with the accumulating cash value of whole life. These plans normally increase in value faster than their whole life because their interest rates tend to follow the markets instead. Premiums can be paid in a lump sum, annually, or anywhere between. There is usually a guaranteed minimum interest rate. The administrative costs of the policy are deducted from the cash value of the policy every month. As long as the cash value is substantial enough to keep the policy in force, the policy will not lapse. The death benefit reduces in proportion to the increase in cash value, which creates a level of the death benefit.

After your life insurance needs are determined and you’ve chosen the type of permanent insurance for your policy, sitting down with your CPA and/or insurance professional will help to complete the process.

The first step to choosing the right policy is to determine if a company offers the policy being considered in good financial standing and that they can pay their claims. Since Survivorship Life Insurance is a long-term instrument, finding a highly rated company with the financial ability to pay claims is essential.

There are several independent companies that rate companies on these factors. We recommend only considering products from companies with the top three ratings from these companies. Here are links to these financial rating companies:

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