Comparing Two Single Life Insurance Policies vs. the Second-to-Die “Survivorship Life” Insurance Policy

Individual policies on the life of each spouse certainly would provide benefits to fund the costs of the death of either spouse. However, if the objective is to provide for the costs of the second death, the SL policy is substantially more cost-effective. As described earlier, the addition of a second life in a SL policy dramatically reduces the cost for a given level of coverage.

In cases where the objective of the estate plan is to defer most or all of the potential estate tax liability to the time of the second death, the use of single life policies on each spouse will provide benefits at the first death, which is earlier than needed. If the deceased has any incidents of ownership in the policy, these benefits will be included in his or her estate and generally added to the assets included in the estate of the surviving spouse. Although these benefits will provide liquidity for the costs of settling the second estate, they unnecessarily increase the tax base of that estate. It is easy to demonstrate that SL is the most cost-effective method to provide life insurance benefits to handle the liquidity needs caused by the second death of two spouses.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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