Second-to-Die Life Insurance

Life insurance is a popular option for people who want to ensure the financial security of loved ones after they’re gone. Second-to-die life insurance is no different, and can be especially helpful for spouses with large estates or without the need for cashflow after their spouse dies. While it’s most commonly used by married couples, there are other situations where second-to-die life insurance is a good option as well.

What is Second-to-Die Life Insurance

Second-to-die life insurance, also called dual-life insurance or survivorship insurance, is a type of life insurance on two people that provides benefits only after the last surviving person on the policy dies. In most cases, a married couple will use second-to-die insurance for estate planning purposes, such as funding an irrevocable life insurance trust or to pay for estate taxes and other associated expenses after both spouses pass away.

Benefits of Second-to-Die Life Insurance

Second-to-die life insurance is usually more economical than other forms of individual life insurance. Since two people are covered under one policy, it typically provides a larger death benefit at a lower cost than buying two individual life insurance policies. Having a single policy cover both spouses can also help couples with medical conditions that make it difficult or impossible for one spouse to get life insurance on their own. Since benefits aren’t paid until both spouses die, illnesses that would be otherwise prohibitive may not have as large of an impact.

Survivorship benefits from a second-to-die life insurance policy can also provide liquidity to surviving heirs, allowing them to pay for estate taxes and other associated costs without having to sell assets from the inheritance. This can be especially beneficial for estates with primarily non-liquid assets, such as real estate and investments.

Common Usages

Most commonly, second-to-die life insurance will be utilized by married couples as part of their estate plan. For wealthy families, policies may be taken to ease the burden of estate taxes. Survivorship benefits can be calculated to pay for the estate tax bill on large inheritances, as well as cover other estate settlement costs.

Second-to-die life insurance policies can also be used to guarantee death benefits to heirs. An Irrevocable Life Insurance Trust can also be the beneficiary of the policy, which allows the death benefits to not be considered a part of the estate or inheritance.

Other Examples

Though second-to-die policies are often utilized by married couples, they can also be options for unrelated people as well, such as business partners who want to plan for transition of ownership after their deaths. Second-to-die life insurance is also a popular option for spouses who have children with special needs. In those cases, policies will often fund trusts to provide financial security for the life and care of the child.

Second-to-die life insurance is usually not a good option in situations where the first surviving spouse needs benefits to cover expenses or maintain a lifestyle. Unlike traditional life insurance policies, the surviving spouse will not receive any benefits. Rather, second-to-die policies tend to benefit people looking for ways to plan for future generations.

The information provided is for informational purposes only. It is not intended to be used, and should not be used, as the sole basis for legal and/or tax advice. Individuals should seek and rely upon the guidance and advice of their own legal and tax counsel before making any decisions regarding any planning, investment, tax concepts or strategies discussed herein. Individual circumstances may vary and results discussed are no guarantees of applicability or future performance.

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