Penny is an expert on insurance procedures, rates, policies and claims. She has extensive knowledge of all major insurance lines -- auto, homeowners, life and health insurance. She has been answering consumers’ questions as an analyst for more than 15 years and has been featured in numerous major media outlets, including the Washington Post and Kiplinger’s.
Reviewed by John McCormick
John McCormick
John is the editorial director for CarInsurance.com, Insurance.com and Insure.com. Before joining QuinStreet, John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.
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Imagine a life insurance policy that doesn’t necessarily pay off when you die. Survivorship life insurance fits that description, and might be a worthwhile purchase for people whose heirs will have to pay hefty estate taxes.
A survivorship life insurance policy, or second-to-die life, as it used to be called, insures two lives — usually a husband and wife. Unlike traditional life insurance, the death benefit isn’t paid out until the second insured person dies.
Usually, the death benefit from a survivorship life insurance policy is intended to pay estate taxes and other estate-settlement costs owed after both spouses pass away. The product was developed in the early 1980s in response to a law that enables married couples to postpone federal estate taxes until both spouses pass away.
Under federal tax law, there is a marital deduction permitting you to leave an unlimited amount of assets to your surviving spouse. If you leave all your worldly possessions to your husband or wife, no federal estate taxes are owed at the time of your death. Those assets then become part of the estate of the spouse and might be taxed when the surviving spouse eventually dies, assuming he or she hasn’t remarried. The death benefit from a life insurance policy could help pay those taxes.
There may be other reasons to purchase survivorship life insurance. For example, parents with special needs children could consider survivorship life policies to provide for those children after both parents have died.
With any type of survivorship life insurance, find out how the policy would be affected by a divorce or a change in estate tax laws. Some life insurance companies offer a rider, without extra charge, that permits you to split the policy into two single-insured policies in certain circumstances.
If you’re considering purchasing a survivorship life insurance policy, consider consulting an attorney who specializes in estate planning.
