There are all types of life insurance policies available these days, so it may not surprise you to learn that it’s even possible to buy a single policy that covers two people.
That’s the basic idea behind survivorship life insurance. It enables two people to have one life insurance policy between them, and at a much lower cost than would be the case if each had a separate policy.
As exotic as survivorship life insurance sounds, it’s one of just many types of life insurance.
You owe it to yourself to explore the many possibilities that are available with life insurance policies today. You may find one you never thought of that works very well for you.
But for now, let’s limit our discussion to the topic of survivorship life insurance.
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What is Survivorship Life Insurance?
Essentially, survivorship life insurance is a joint life insurance policy. Instead of having two policies, one for each person, a couple instead opts for a single policy on both parties.
Survivorship life insurance also goes by various names, including:
- Second-to-die life insurance
- Variable survivorship insurance
- Joint survivor life insurance
Don’t get confused by the different names, however, since they are mostly variations of the same product from one insurance company to another.
Though survivorship life insurance can be either whole life insurance or term life insurance, it’s best suited to whole life insurance, since that particular type of policy represents permanent coverage. There are contingencies on the payment of the death benefit that favors permanent coverage.
The advantage of whole life insurance, other than the fact that it’s permanent, is that it also features a cash value accumulation. That means the policy will build up investment value, while it’s providing a death benefit.
Whole life, of course, does cost a lot more than term life insurance, which is why term life is generally the preferred policy type. But, in the case of survivorship life insurance, whole life is typically the better fit, despite the higher premium.
How Does a Survivorship Life Policy Work?
Survivorship life insurance is sometimes confused with what is known as “first-to-die life insurance policies, but they’re actually very different in a fundamental way.
A survivorship life insurance policy pays the death benefit only after both policyholders have died (“second-to-die”). On the other hand, first-to-die policies pay out a death benefit when the first of the two policyholders die.
In that case, the policy serves only as a benefit for the surviving spouse. Once the surviving spouse dies, a first-to-die policy does not provide a death benefit for any additional survivors.
When applying for a survivorship life insurance policy, a couple will make a joint application. That means both partners will go through the underwriting process. That will include providing personal information, personal health information, and possibly submitting to a medical exam.
Since a survivorship life insurance policy doesn’t pay a death benefit until the second spouse dies, the surviving spouse will need to continue making the premium payments on the policy for the rest of his or her life, or the expiration of the term if it’s a term life insurance policy.
When Survivorship Life Insurance Makes Sense
As you may have guessed already, survivorship life insurance doesn’t have general application as life insurance coverage. Instead, it works in very specific situations.
The primary purposes for survivorship life insurance are estate planning and income protection for a permanent dependent.
In the case of estate planning, in most cases, there is no tax liability to the surviving spouse. However, when the surviving spouse dies, estate tax liability may apply to the couple’s surviving beneficiaries. Since the death benefit is paid only on the death of the second spouse, the proceeds will be available to cover those taxes.
For income protection for a permanent dependent, a survivorship life insurance policy can work if both spouses are capable of providing for a permanent dependent individually. But once the last spouse dies, the policy will provide for the financial needs of the permanent dependent.
There are very few, if any, other circumstances where survivorship life insurance would be a recommended choice.
Advantages of Survivorship Life Insurance
Potential to save money on premiums. One of the biggest advantages of survivorship life insurance is saving money on the premium. Though a survivorship life insurance policy will cost more on a per thousand basis than an individual policy, it will almost certainly be less expensive than maintaining two separate policies.
When one spouse can’t qualify for an individual life insurance policy. It can also be an advantage when one spouse may not qualify for an individual policy. Though an insurance company may not approve a policy for that individual, they may approve a survivorship life insurance policy based on the healthier spouse. This is in large part because the policy will be based primarily on the health of the healthier spouse. After all, the death benefit will not be paid out until the second, presumably healthier spouse dies.
Since survivorship life insurance is often a whole life policy, it will provide permanent life insurance for the couple. This will guarantee that there will be death benefits available to the couples’ beneficiaries, even if there will be no death benefit paid to the surviving spouse.
The cash value/investment provision that a whole life insurance policy provides. If you like the idea of having an investment provision with your life insurance policy, the fact that survivorship life insurance is typically constructed with whole life will provide that benefit. You’ll have both the death benefit and the cash value accumulation that whole life insurance provides. This, of course, will apply only if the underlying policy is whole life.
Permanent life insurance coverage. If your survivorship life insurance policy is based on a whole life policy, you’ll have coverage for the rest of your life.
Downsides to Survivorship Life Insurance
Except in the limited situations discussed earlier, survivorship life insurance does have the potential to be more expensive over the long term than buying individual term life insurance policies.
Premium cost doesn’t always work in your favor. The cost factor begins with the general use of whole life insurance for the policy. Whole life insurance can be 10 times or more the cost of an equivalent amount of term life insurance. In that way, it’s less expensive to purchase two separate term policies than a single survivorship life insurance policy based on whole life.
And of course, the whole reason for using whole life is because survivorship life insurance is specifically designed to pay only upon the death of the second spouse. That means a 10- or 20-year term policy—though less expensive than a whole life policy—can be completely inadequate serving in this role.
No death benefit for the surviving spouse. Probably the biggest downside of survivorship life insurance is that it doesn’t provide a death benefit for the surviving spouse. One of the primary reasons for taking life insurance at all is to provide for the policyholder’s beneficiaries. If your spouse were entirely or even partially dependent on your income and financial resources for survival, here she would have no benefit from a survivorship life insurance policy.
Put another way, survivorship life insurance does not provide for income replacement of the deceased spouse. Since that’s probably the single biggest reason for purchasing life insurance in the first place, survivorship life insurance is not a recommended strategy for this purpose.
Continuation of premium payments after the death of the first spouse. Finally, there’s the issue of the surviving spouse needing to pay the premiums after the first spouse dies. If the surviving spouse lives another 20 or 30 years, he or she will need to continue making the premium payments, despite receiving no benefit from the policy.
Should You Get a Survivorship Life Policy?
As discussed earlier, survivorship life insurance works in only a very limited number of circumstances. But, if one of those circumstances may apply to you, you’ll need to work with an insurance company that specializes in survivorship life insurance.
Not all do, and that can present a problem if that’s the specific policy type you need. If you make an application with a company that doesn’t offer the policy, the likely outcome is that they will steer you into an entirely different policy that they do have available. That may be good for the insurance company and its agent, but it won’t work for you.
Instead, make an application with an insurance broker. Since we work with dozens of life insurance companies—providing virtually every type of policy for every individual profile—we know exactly which companies offer survivorship life insurance. We will be able to match you with the company most likely to approve your application and do so at the lowest premium rate.
Never assume that companies advertising the lowest premiums will be the best choice for either specialized policies or unique individual circumstances.
The whole reason they’re able to offer such low rates is that they provide limited policy types designed for a very narrow range of the population. This typically includes young applicants in good or excellent health. If you don’t fit that profile, you’ll either pay a much higher premium than what you see advertised or even have your application rejected.
As life insurance brokers, we specialize in unique policies for applicants who are in less than perfect health. We can place you with the best life insurance company for your circumstances, and our services won’t cost you anything extra.*While we make every effort to keep our site updated, please be aware that "timely" information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.