Survivorship life insurance, also known as second-to-die insurance, covers two people — usually spouses — under a single policy and pays the death benefit only after both insured individuals have passed away.
This unique structure makes it a powerful estate planning tool for couples with substantial assets.
How Survivorship Policies Work
Both spouses are covered under one policy, but no death benefit is paid when the first spouse dies. The benefit is paid only after the second spouse passes away, which is when estate taxes typically become due and heirs receive their inheritance.
Because the policy only pays after both deaths, premiums are significantly lower than two individual policies.
Estate Planning Applications
Survivorship life insurance is primarily used to cover estate taxes that become due when the second spouse dies. The unlimited marital deduction allows assets to pass tax-free between spouses, but the surviving spouse’s estate may face substantial taxes.
A survivorship policy held in an irrevocable trust provides tax-free funds to pay these estate taxes, preserving the full inheritance for heirs.
Who Benefits Most?
Couples with combined estates exceeding the federal estate tax exemption benefit most from survivorship policies. They’re also useful for parents of children with special needs, business owners planning succession, and couples who want to leave a significant charitable legacy.
If estate taxes aren’t a concern, individual policies may be more appropriate.