How Does Survivorship Life Insurance Affect Estate Planning?

The options can be overwhelming when deciding how you want your assets and property distributed. However, a survivorship life insurance policy can provide relief and help you determine when, how, and to whom your assets and property are distributed. Knowing your loved ones will be provided for can bring significant peace of mind.

If you would like guidance from an estate planning law firm in Wilmington, NC or throughout SC and coastal NC, we are here to help you.

What is Survivorship Life Insurance?

Also known as second-to-die insurance, a survivorship life insurance policy is designed for two people and set up under one policy. The insured individuals can be married, unmarried, or even business partners.

While other life insurance policies pay out when the first insured passes away, this policy does not. A survivorship life insurance policy pays out benefits after both have passed, ensuring that there are benefits to pass on to the beneficiaries.

Types of Survivorship Life Insurance Policies

There are many options for life insurance policies, and knowing which one will be best for you and your family is vital. A SC estate planning lawyer can help guide you in the right direction. These policies offer flexibility and control, and empower you to make the best decisions for your financial future.

Whole Life Survivorship Insurance

This policy type is permanent and lasts your entire life as long as you continue to pay your premiums. Upon the passing of both insured individuals, it pays a tax-free death benefit to the designated beneficiaries. Additionally, it builds cash value over time. Under certain conditions, this cash may be accessed during the insureds’ lifetimes.

Universal Life Survivorship Insurance

This policy gives policyholders flexibility when paying premiums, a death benefit, and a cash savings component. Insured individuals can adjust premiums and death benefits over time. As the cash-saving component accumulates, insureds can borrow against it and withdraw from it.

Variable Life Survivorship Insurance

Variable Life Insurance is a permanent life insurance policy that allows holders to invest the policy’s cash value. The opportunity for growth comes with the chance of loss, making this policy type a riskier option.

Pros and Cons of Survivorship Life Insurance Policies

As with everything, survivorship life insurance policies have pros and cons. It’s important to speak to a knowledgeable estate planning attorney to fully understand your options.

Pros

• Survivorship life insurance is often less expensive and provides more coverage than individual policies.
• Survivorship life insurance offers significant tax advantages for estate planning. It can help reduce the tax burden on your estate, ensuring that more of your assets go to your beneficiaries.
• This policy ensures you will leave your family with a legacy that will benefit future generations.
• You typically can borrow against the policy’s cash value while you are still alive, but this will reduce the cash value and the amount paid to your beneficiaries when you pass.
• Survivorship life insurance can be structured to care for disabled dependents after both policyholders are deceased.

Cons

• This type of life insurance policy is suitable if the insureds can financially support themselves independently. However, this policy is less applicable if one of the insureds needs the policy benefits once the other insured passes away.
• The policy will remain in effect after a divorce. If the ex-spouse dies, the surviving spouse must continue paying the premiums so the beneficiaries receive their benefits.

After weighing the pros and cons, survivorship life insurance policies offer many advantages for long-term estate planning. Since many considerations are involved, contacting an estate planning lawyer to advise you is always a good idea. This professional guidance can give you the support and direction you need to make informed decisions about your estate planning.

Why is Survivorship Life Insurance helpful in Estate Planning?

Second-to-die life insurance is a policy designed to mitigate the tax burden on property or assets after a policyholder's death.

A surviving spouse or the second insured listed on this policy does not have to pay taxes after the first person listed on the policy has passed. However, if the assets exceed the federal exemption level, the beneficiaries must pay taxes after the second policyholder passes.

An irrevocable life insurance trust, also called an ILIT, is often used in conjunction with this type of life insurance. The ILIT owns the policy, meaning the insurance proceeds are directed to the beneficiaries outside the taxable estate, thereby avoiding probate and estate taxes.

Life insurance policies are typically tax-free for the beneficiaries and do not have to go through probate, which makes having a survivorship life insurance policy a great choice. This makes life insurance an advantageous option for estate planning, as it ensures that your heirs have timely access to funds to cover necessary expenses and taxes without delay.

The Insurance Company Process

Filing a life insurance claim is usually straightforward:

• Contact the company that issued the policy to notify them of the insured’s passing
• The insurance company will send a claim form for the beneficiaries to complete
• Send the form back with a certified copy of the death certificate

The process usually takes 30 to 60 days once the insurance company receives all of the required information.

Ready to Get Peace of Mind?

Calling one of our attorneys for wills, trusts and other estate planning needs is the first step in the right direction. We will advise you on how a survivorship life insurance plan can benefit your estate planning goals. Reach out today for a free consultation.