If you're looking into insurance options with your spouse, survivorship policies are probably something to consider. They can help you protect your legacy. Find out more about these specialty plans below.
What Is a Survivorship Life Policy?
Sometimes called second-to-die life insurance, survivorship life policies are held by two people. Both of those people must die for the benefits to be paid. When the first person dies, nothing changes; no benefits are paid and the surviving policy holder still pays the premium. This form of insurance is very specialized and generally used to address specific needs for couples and families.
Uses of Survivorship Policies
This form of insurance probably seems a bit strange. At first glance, there doesn’t seem to be a reason to want a policy owned by two people. But there are a few cases where this type of policy can be a good solution.
One common use of survivorship life insurance policies is to pay estate taxes. When one spouse dies, there's usually not a need to deal with estate taxes as the surviving spouse maintains ownership of the estate. There isn’t a transfer of ownership. This does depend on which state you live in, though, so make sure you understand the estate laws in your area before you purchase life insurance.
However, when the second spouse dies, the estate goes to the heirs. In this case, the survivorship policy may cover the estate taxes. Depending on the state you live in or how much your estate is worth, this can be a large amount of money.
Another situation where this kind of insurance could be useful is when a couple has a dependent and either of the spouses is able to care for the dependents alone. You wouldn't necessarily need life insurance to kick in if only one spouse passed away. However, the survivorship policy ensures that if both caretakers were to die, the dependent would still be provided for.
Survivorship Life Policy Versus Joint Life Policy
The big difference between survivorship life policies and joint life policies is that the former is a second-to-die plan and the latter is a first-to-die policy. Joint life policies pay out when the first of the two policyholders dies. This policy is more geared towards newlyweds and spouses who are codependent financially. They're meant to ensure that a surviving spouse is provided for financially.