Commonly known as survivorship insurance, joint insurance or last to die insurance, second to die life insurance provides a type of life insurance policy that is an appealing and affordable option worth considering for estate planning. Second to die life insurance consists of coverage for two individuals and pays out proceeds of the policy only when the surviving spouse dies.
Husbands and wives are insured in most cases and insurance can be purchased for estate planning reasons. Since survivorship polices cover two lives and do not pay out until the second death, they are generally less expensive in comparison to individual life policies and serve as a great way to provide liquidity to estates.
Second to Die and Term Life Insurance
With a regular term, whole life or universal life insurance, beneficiaries are paid the death benefit upon the person’s demise. These policies insure one person while second to die insurance is used to insure two people or more at once.
If you and your spouse purchase the policy, the death benefit is expected to be paid to beneficiaries such as heirs, a charity or trust after death. The functionality of second to die life insurance policies is similar to other forms of life insurance but the key difference is the death benefit that is only paid out when the second death occurs.
Applying for a second to die insurance policy involves the same process as purchasing individual life insurance. In this case, the only exception is that it will cover two people who are typically a husband and wife.
When you complete and sign the application form, you may be expected to submit you medical records in order for the underwriting process to be completed. After the medical information has been duly reviewed, your policy may be approved and issued.
Investing in Second to Die Insurance
- People select polices for various reasons. Second to die life insurance is designed for long-term use and is mainly bought by individuals whose net worth is high and want to pass on wealth and preserve their estate.
- Second to die insurance policies can be used for charity contributions, estate planning and making sure there is enough money for a child who has special needs.
- Another reason for setting up survivorship policies is a second to die trust.
Some of the important reasons to purchase joint life insurance include the following.
- Since joint life insurance policies cover two people and do pay until the second individual’s death (whose life expectancy is likely to be longer), a second to die policy is more affordable when compared to an individual life policy.
- If a large amount of your net worth consists of non-liquid assets or you have considerable real estate holdings, survivorship insurance can provide liquid cash. This will protect your property and prevents you from selling your real estate and other assets to cover estate tax payments.
- Second to die insurance offers a cost-effective solution to providing liquid assets in order for you to avoid disposing of your property through a quick sell at inappropriate times.
- Second to die insurance is a useful vehicle for estate planning.