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What is Survivorship Life Insurance?

Many people get life insurance to protect their loved ones, such as their spouse or partner, when they pass away. However, they can also use their policy to help with estate planning. For couples, survivorship life insurance offers a cost-effective way to help provide financial security for heirs or help cover estate taxes. Unlike traditional life insurance policies that provide coverage for one person, survivorship life insurance pays out a death benefit only after both insured parties pass away. This article will explain how survivorship life insurance works and explore its benefits and drawbacks to help you see if it’s right for you.

How survivorship life insurance works 

Survivorship life insurance is a joint life insurance policy, meaning it insures two policyholders within a single policy. It does not pay out the death benefit until both policyholders pass away. This arrangement may generally result in lower premiums than comparable policies, and both policyholders may opt to share the cost.1

Survivorship life insurance vs. first-to-die life insurance

Survivorship life insurance and first-to-die life insurance are the two main kinds of joint life insurance. Each insures two policyholders under one policy. Survivorship life insurance only pays out the death benefit when both policyholders have passed away. They are sometimes called second-to-die policies for this reason.

Survivorship life insurance is often used in estate planning, helping heirs gain additional funds when they receive the policyholder’s estate. On the other hand, first-to-die life insurance pays the death benefit after only one of the policyholders passes away. While this policy type can play a role in estate planning, policyholders often use it to help the surviving policyholder cover expenses, pay off debts, and replace income.

Types of survivorship life insurance

Survivorship life insurance policies tend to be permanent policies, offering lifelong coverage to avoid the policy expiring before both policyholders pass away. They also provide cash value, which grows with each payment and earns interest at different rates depending on the policy type. Policy owners can borrow or withdraw from their cash value as it grows and receive the funds minus surrender charges if they surrender their policy. Here are some types of survivorship life insurance:

Whole life insurance

Survivorship whole life insurance offers lifelong coverage with fixed premiums and death benefits. The cash value grows at a fixed interest rate, offering a slow but safe way to grow the value of your policy.

Universal life insurance

Survivorship universal life insurance works like whole life insurance, except premiums and death benefits are flexible. You can increase or decrease them as needed. Cash value grows at a fixed, predetermined rate, like whole life insurance. You can also use it to pay premiums once it grows enough. This policy can work well if you prefer stability but need more flexibility than whole life insurance.

Indexed universal life insurance

Indexed universal life insurance offers the premium and death benefit flexibility of universal life insurance. However, you can invest the cash value in a market index, offering more potential growth in exchange for an increase in risk. If you want to balance higher growth potential with lower risk, indexed universal life insurance may be right for you.

Variable life insurance

Variable life insurance is the most complex survivorship life insurance policy since you can use the cash value for individual assets, such as stocks, bonds, and ETFs. Variable life insurance may work best for those who feel confident actively managing their own investments.

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How much does survivorship life insurance cost? 

A single survivorship life insurance policy may cost less than two separate policies because the insurer has a lower risk. The timeline before the payout is longer since both policyholders must pass away beforehand. That said, several factors impact the cost of survivorship life insurance:

  • Age and health of both policyholders: Insurers often consider the younger and healthier of the two applicants when underwriting.1 This could result in more favorable rates and terms. However, they don’t ignore the other policyholder’s age and health status.

  • Insurer: Every insurer may offer different rates and terms for the same policy. Comparing quotes can help you find a policy with premiums that fit your budget.

  • Each policyholder’s occupation: High-risk jobs, such as law enforcement or aviation, may increase premiums.

  • Each policyholder’s lifestyle and hobbies: Hobbies that are deemed risky, like racing cars or scuba diving, may result in higher premiums.

  • Smoking status: Smokers may pay more for life insurance than nonsmokers.

Pros and cons of survivorship life insurance

Make sure to understand the benefits and drawbacks of survivorship life insurance before getting a policy:1

Pro: Receive more coverage

Survivorship policies often come in large amounts, given their common use as estate planning and wealth-building tools. Therefore, getting large amounts of coverage at reasonable rates may be easier.

Pro: Cost-effective

Survivorship life insurance may be more cost-effective for some, since insurers tend to charge less than for policies with one policyholder, given the same death benefit size. This may help you get lifelong coverage, a sizable death benefit, and a cash value component for less than a traditional policy.

Pro: Estate planning tax advantages

Survivorship life insurance can be an excellent estate planning tool since it pays out after both policyholders pass away. The death benefit is free from income taxes.

Con: One death benefit instead of two 

Survivorship policies only provide one death benefit after two policyholders pass away. If beneficiaries need financial help after the policy pays out, no additional benefit is waiting. You can buy more coverage to compensate, but this still requires some extra planning to ensure you get enough without buying too much.

Con: The surviving partner won’t receive the death benefit after the first partner passes away

Survivorship life insurance only pays the death benefit once both policyholders pass away. That means once a policyholder passes away, the surviving partner isn’t entitled to a death benefit yet. The surviving partner must be able to support themselves financially without their partner. This can be difficult if the deceased partner was the primary earner or the surviving partner has several debts to handle.

Con: Difficult to update the policy in case of divorce

Survivorship life insurance policies require both policyholders' consent to make policy changes. This can make changing or canceling the policy difficult in case of a divorce.

Get a quote for Aflac life insurance 

Survivorship life insurance can offer couples a cost-effective estate planning tool, helping them pass down more wealth. However, it doesn’t pay out until both policyholders pass away, so it may not be suitable for relationships where one spouse or partner is the primary earner.

You can get a life insurance policy from Aflac to gain additional flexibility and financial protection, whether your goal is to protect your loved ones or enhance your estate planning. Speak with an agent today to explore your options.

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