Many different survivorship life plans use the various types of permanent policies as the base policy together with a host of riders and premium payment plans. The fees, charges, and commission rates are similar to those charged for similar types of single life policies with similar riders and premium payment plans, relative, of course, to the generally lower premium level for survivorship life for any given level of coverage. Generally riders or options that are unique to survivorship life, such as the split options available with many plans, involve additional charges.
One of the key attractions of SL is that the premium cost for a SL policy is less than the combined premium cost to purchase separate policies on each named insured. This is possible because the premium is based on the probability of paying benefits on someone other than the first to die. To illustrate, based on the IRS’ most recent mortality table in nine out of ten cases involving two people of average health who are age fifty-five and fifty-two, at least one will die within 31.3 years. However, the probability that both people will die within 31.3 years is only 46 percent. In other words, an insurer would be almost twice as likely to pay a death claim within 31.3 years if it issued two separate policies rather than a single survivorship life policy.
Premiums normally continue after the first death, and in some plans may increase dramatically. Other plans provide that premiums cease after the first death. The premium schedule depends on how the plan is designed, the relative proportions of permanent and term coverage, as well as other factors. Because the insurer’s reserve requirements are low while both insureds live, even relatively modest premiums (compared to the total payments that would be necessary for two separate policies) may build substantial cash values. However, after the first death, the policy essentially becomes a traditional single life policy. As a result, the company’s reserves generally must increase substantially after the first death. If earlier premium payments were not sufficiently high to build the cash value necessary to support the higher required reserve, the policyowner may have to pay higher premiums or suffer a reduction in the face amount of coverage.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM