When Should You Consider Survivorship Insurance?
by Joe Borowiec
Survivorship insurance, also known as joint survivor life insurance or variable survivorship life insurance, covers multiple people under one policy, making it an appealing option for spouses, parents and couples. You may also hear this type of coverage referred to as “second-to-die” insurance because beneficiaries don’t receive the benefit until both insured policyholders pass away.
Survivorship insurance is variable, meaning policyholders benefit from a cash value component in which a portion of each premium payment is put toward an investment of the policyholder’s choosing. The rest of the premium goes toward administrative expenses and the death benefit.
Variable universal survivorship insurance is another type of variable coverage that gives policyholders the ultimate freedom of being able to adjust the policy’s premium and death benefit while the policy is active.
Who Benefits from Survivorship Insurance?
Survivorship insurance can be a great option for individuals seeking to preserve their wealth. Estate planning attorneys may advise families with a high net worth to invest in survivorship insurance in order to protect their assets for future generations. This type of coverage is ideal for policyholders who want the money to go to a business or estate (rather than a spouse) to provide liquidity after they pass away.
Pros and Cons of Survivorship Insurance
If you are considering survivorship insurance, you may be pleased to discover that joint coverage is typically less expensive than taking out two individual policies. It is also easier to qualify for survivorship insurance than for single-insured life insurance. For example, if you are ill it may be difficult to qualify for more standard life insurance coverage. By purchasing a joint survivor life policy, you are more likely to be approved.
You may also find that a survivorship life policy allows you to:
· Build and preserve your estate
· Access cash values after one policyholder has died
· Adjust the death benefit
Conversely, survivorship insurance can be limiting, as changes to your marital status can impact your premiums. Your policy may also be affected by changes in estate tax laws.
Others may find it problematic that the death benefit is only accessible once both parties are deceased. For policyholders who don’t wish to stay insured after their spouse has passed away, there are options beyond simply letting the policy lapse.
Pursuing a Life Settlement
If you’re seeking a way out of your insurance policy, you might have luck on the secondary market where insurance policies are bought and sold. This transaction is known as a life settlement, and it is a viable alternative to surrendering your policy back to your insurance carrier.
To qualify for a life settlement, you must be at least 65 years old and own a term, whole or universal life policy with a face value of $100,000 or more. When personal circumstances such as your health or marital status change, your life insurance needs will likely change, as well. Life settlements allow you to take the necessary steps toward financial freedom and stability.