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Survivorship Life Insurance

Second-to-Die Life Insurance or Survivorship Life Insurance was created to address the estate tax liability problem of passing assets to heirs. It is a basic estate planning tool designed to fund a future estate tax liability. Since the IRS allows a person to pass all of their assets (Estate) to their surviving spouse with no estate tax consequences, it is how most people set up their wills. But, this can become an estate tax trap because typically, the female spouse inheriting the estate will live longer, allowing the assets to continue appreciating over her remaining lifespan. So, when she dies, potentially, the IRS will get a piece of a larger pie thus creating a larger estate tax due at her passing. By utilizing Second-To-Die life insurance or Survivorship Life Insurance, the estate tax liability can be pre-funded at a significant discount and payable exactly when needed.

Survivorship life insurance insures both husband and wife and pays the death benefit at the second passing, when the estate tax is typically due. The Survivorship life insurance policy is usually purchased by an Irrevocable Life Insurance Trust or ILIT, to keep the proceeds of the policy out of one’s estate. The death benefit for the Survivorship life policy is paid to the trust, which in turn pays the IRS to cover the estate tax due.

Buying a Survivorship life insurance policy can cost considerably less than buying separate Universal life insurance policies for husband and wife, since the insurance company is not paying a death claim until the second death (hence, the alternate name Second-to-die life insurance). Another benefit of Survivorship life insurance is that since both husband and wife are being insured at the same time, the insurance company will consider insuring one “unhealthy” spouse. So, when purchasing a Second-to-die life insurance policy, if one spouse is in decent health, many life insurance companies will insure an “Uninsurable” spouse as long as he or she has a maximum six-month life expectancy. (Note: The length of life expectancy for an uninsurable spouse will vary by insurance company.)

Survivorship Life Insurance can be Whole Life, Universal Life or Variable Life. The most cost effective Second-to-die policies, however, are the newer Universal Joint Survivorship life policies with low guaranteed premiums and guaranteed death benefits. Universal Joint Survivorship life policy designs now allow for the guaranteed premium stream of your choice. Unlike the quick-pay or vanishing premium concepts for participating Whole Life policies that are based on non-guaranteed dividends, the newer Universal Joint Survivorship life insurance policies will provide a guaranteed premium stream as well as a guaranteed death benefit.

In summary, if you are concerned about your heirs having to pay the estate taxes due on your estate at the time of the second passing, a Survivorship life insurance policy or Second-to-die life insurance policy is the best way to lock in a guaranteed death benefit and a guaranteed premium to age 100 or more, so the money is available to pay off the estate taxes due at that time, instead of having to sell off assets to pay the estate taxes.

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