What are the Alternatives to Second-to-Die “Survivorship Life” Insurance Policy?

Survivorship life is a unique life insurance product for its intended purpose: to provide death benefits only when the last covered insured dies. The closest alternative strategy is to insure each life separately, but that strategy may often be a relatively poor solution.

Typically, after a death, the estate’s personal representative has three principal alternatives if estate taxes must be paid: (1) to sell estate assets; (2) to borrow money; or (3) to have cash available.

Selling estate assets may result in an economic loss to the heirs because of adverse economic conditions at the time assets must be sold. Also, forced sales of illiquid assets may in fact become fire sales, where the amount received is only a fraction of the real value.

Borrowing may only delay the day of reckoning, while incurring additional interest expense to further deplete the estate. Cash will be available in the absence of life insurance only if assets were converted to cash before death. Because most people do not know when they will die, this implies they must keep a large portion of their assets in low-yielding liquid instruments at all times.

The opportunity cost of foregoing more lucrative but less liquid investments can be sizable over time. If preservation of wealth for heirs is a major objective, life insurance frequently is the best way to reach this goal. If the goal of the estate plan also is to defer much of the estate tax until the second death, survivorship life frequently is the best choice.

Where and how do I get it?

Many U.S. insurers offer survivorship life products. Because the market for survivorship life is dynamic and competitive, with new product innovations, riders, and package plans being introduced at a rapid pace, it is probably wise to consider products from several companies as well as alternative plans offered by the same company.

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

Leave a comment

A Quick and Easy Life Insurance Needs Calculator