Estate Planning Uses of the Second-to-Die “Survivorship Life” Insurance Policy

Survivorship Life is uniquely designed to provide for a married couple’s estate planning needs. The demand for this popular product has grown in recent years because of several distinct needs created by the second death of two spouses. First, the number of two-income families has increased which means that significant income will continue to be available to the family after the death of the first spouse to die in a two-income family. The need for death benefits to protect dependents is often greatest at the second death of two income-earning parents. SL exactly matches the maturity of the need with the maturity of the policy should both parents die prematurely with young children still dependent upon the parents’ income. In addition, SL is generally a less expensive method to provide this coverage for young two-income parents on a tight budget.

Second, planners typically design estate plans to take advantage of the current tax laws and the unlimited marital deduction to defer most or all estate tax until the surviving spouse dies. The unlimited marital deduction permits most or all of the couple’s assets to pass to the surviving spouse without estate tax. As a result, the typical estate plan defers the most significant death taxes until the second death of the two spouses. Once again, the timing of SL’s death benefit perfectly matches the timing of the need.

Finally, SL is appropriate for even the most rudimentary estate plan. Many married individuals own much of their property jointly in the form of tenancy by the entireties. This means the surviving spouse automatically has survivorship rights in the property that passes by operation of law when the first spouse dies. This automatic transfer avoids probate costs and qualifies for the unlimited marital deduction from estate taxes. All probate costs and federal estate taxes associated with property held jointly by the spouses will be incurred at the second death—the exact time when SL will provide its cash benefit.

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

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