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Joint Survivorship Life Insurance
Whenever you get a life insurance policy, two of the most important things to consider are:
- Who do you need the policy to benefit?
- How do you need the policy to benefit these people?
For married couples, you need to decide if you want to get separate life insurance policies or a joint policy. While it is typically more beneficial to have individual policies, there may be circumstances where it makes more sense to have a joint policy.
If you opt to do a joint policy you will again have another decision to make between first-to-die life insurance or a survivorship (second-to-die) life insurance policy.
This article will discuss a couple of ways that you can provide coverage for multiple people in one policy through what is called survivorship life insurance.
What is first-to-die joint life insurance?
The first-to-die policy is a joint life insurance policy that covers two people at the same time (typically either a spouse or a business partner). A payout is given to the survivor of the policy. The policy ends at the death of the first person covered in the policy.
Who is first-to-die life insurance best for?
This type of life insurance policy can be useful to supplement one's income. Suppose you are a two-income couple, and the death of one spouse will leave things financially tight for the surviving spouse. A first-to-die policy will alleviate this worry by providing a supplementary income for the survivor.
Another person who might consider this is for business succession planning in the form of key man life insurance. For example, suppose you are in business with a partner, a first-to-die policy can be a great way to provide an immediate income stream to the surviving business partner in order for the survivor to either wrap up the business, sell the business, or provide additional funds to hire a replacement.
It is important to note that in some cases, specifically for parents of young children, only having coverage on one parent may not be ideal in the event that both parents were to pass away.
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What is survivorship life insurance
A survivorship life insurance policy, also known as second to die life insurance, is a joint permanent life insurance policy that covers two persons. Unlike the first-to-die policy, the second-to-die policy offers a payout after both parties are deceased.
Guaranteed universal life insurance is the typical choice for this type of coverage.
Indexed Universal Life Insurance can also provide a good option for those considering second to die policies.
You may also want to consider single-premium universal life insurance.
Who is survivorship life insurance best for?
Typically this type of insurance is best for spouses who want to provide income replacement for a permanent dependent, such as their children.
You could also consider this policy for the following reasons:
- Estate planning
- You can't afford to have individual policies for each spouse
- One spouse was declined traditional life insurance coverage, but the other is in good health
For estate planning with life insurance, you can leave an inheritance for your children and there are often tax benefits to using life insurance policies for estate planning.
If you can't afford to have a policy in place for both spouses, this can be an inexpensive way to provide protection on both. Though it is worth noting here that this isn't meant to provide income replacement for a surviving spouse as they wouldn't benefit from the policy in his/her lifetime with this type of policy.
If one spouse has been declined for traditional life insurance, this can be a good way to provide them with coverage if the other spouse is healthy. It can often be difficult to qualify for life insurance with some pre-existing conditions or dangerous hobbies, this type of policy provides a way to give coverage to both spouses.
What is a “spendthrift clause”?
This is something that is optional in many second to die life insurance policies. A spendthrift clause allows you to set up a payment plan, releasing the policy’s pay out over time rather than all at once.
Why get it: This is an excellent option if you do not feel the recipient of your life insurance policy pay out is financially responsible to receive a large sum of money all at once. Essentially, the beneficiary has no ability to change the settlement option and cannot borrow from the funds or assign the proceeds to creditors or lenders.
Drawbacks: If your beneficiary dies before the total sum is paid out, the remaining money may be lost “in the system”. However, there are some legal measures that can be taken to prevent this.
Depending on your situation, it might be better to get individual policies. However, as you have seen there are situations where it can be beneficial to get a joint life insurance policy.
If you aren't sure what's right for you and want to learn more about your options, give us a call today and a life insurance agent can help point you in the right direction.