Have you ever wondered how affluent families create generational wealth? One dependable strategy involves investing in a survivorship life insurance policy.
This informative guide delves into how wealthy families utilize survivorship life insurance as part of a comprehensive estate planning strategy.
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- What is survivorship life insurance?
- How are survivorship life insurance policies helpful in estate planning?
- What is the federal estate tax exemption?
- How do you fund an Irrevocable Life Insurance Trust?
- How does survivorship life insurance work for wealth transfer?
- What are some helpful tips for buying survivorship life insurance?
- FAQ: Survivorship Life Insurance
What is Survivorship Life Insurance?
Survivorship life insurance, also known as second-to-die insurance, insures two spouses and pays out after both have passed.
This type of policy emerged over thirty years ago following new legislation that permitted married couples to defer federal estate taxes until both partners died.
This joint life policy is often used in estate planning to transfer wealth to children or to assist in paying estate taxes.
Advantages of a Survivorship Life Policy
- Easy to qualify: Since 2nd to die life insurance policies cover two lives, underwriters are often more lenient in the approval process.
- Lower premiums: These policies usually do not pay out until the second spouse dies, so they are cheaper than two individual life policies.
- Lifetime coverage: Survivorship universal life insurance offers guaranteed premium and death benefits for life.
- Preserve your estate: Using life insurance to pay estate taxes ensures that your assets are transferred to your children, while the death benefit is used to settle the federal estate taxes.
- Builds your estate: Survivor policies offer an excellent method of creating an estate, not just insulating it from taxes.
- Return on investment: Survivorship policies usually provide a better ROI than individual universal or whole life insurance policies.
Survivorship Life to Pay Estate Taxes
Survivorship Life to Pay Estate TaxesMany high-net-worth individuals look at survivorship life insurance because their estate is so large that it will eventually create an estate tax problem.
How are survivorship life insurance policies helpful in estate planning?
A survivorship life insurance policy provides liquidity to avoid selling off everything at fire-sale prices to pay federal estate taxes owed after both spouses pass away.
Since death benefits are only paid after both spouses die, the beneficiaries of a second-to-die policy are usually your children, an Irrevocable Life Insurance Trust, or a Dynasty Trust.
It is crucial to plan for the future growth of your assets, as they may eventually become subject to estate taxes. Additionally, it is important to consider the potential decrease in lifetime exemption limits that could begin in 2026.
We recommend that you seek advice from an accountant or an experienced estate planning attorney to estimate your current and projected future tax obligations.
Taking a proactive approach allows high-net-worth couples to secure survivorship insurance at a younger age when premiums are more affordable.
If you want to start with some initial survivorship life insurance quotes, use our calculator to compare rates from top-rated insurance companies.
Survivorship Life Insurance Quotes
Federal Estate Tax Exemption
Federal Estate Tax Exemption The ever-evolving estate tax laws have influenced the survivorship life insurance purchases of many wealthy families. Under current federal tax law, a marital deduction permits you to leave unlimited assets to your surviving spouse.
If you leave all your assets to your spouse, no federal estate taxes are due at the time of your death. Those assets become part of the spouse’s estate and might be taxed when your surviving spouse dies.
As of 2024, each partner can individually claim an exemption of $13.61 million for federal estate taxes, enabling couples to pass on up to $27.22 million without incurring any tax liabilities.
However, to take advantage of your late spouse’s unused exemption, you must make a portability election on the first spouse’s estate tax return.
The portability election means that if one spouse dies and does not make full use of their estate tax exemption, the surviving spouse can make an election to exercise the unused exemption and add it to the surviving spouse’s exemption.
In 2022, the IRS increased the window for choosing portability from nine months to five years after the first spouse’s death.
This portability election means a married couple can pass on a whopping $$27.22 million to their children free from federal estate taxes in 2024!
The current estate tax rates, ranging from 18% to 40%, are applicable to the value of an estate that exceeds the exemption amount. However, it’s important to note that these higher lifetime exemption limits are set to expire by the end of 2025.
This means that unless extended, the exemption amount will decrease significantly, potentially leading to increased estate tax liabilities for many affluent Americans.
To avoid any unexpected federal estate tax bills for your family, we strongly advise consulting with a qualified insurance agent and estate planning attorney.
Funding an ILIT with Survivorship Life
Funding an ILIT with Survivorship LifeIf you have a substantial estate, it may be wise to consider setting up an Irrevocable Life Insurance Trust (ILIT). This type of trust, known as a “second-to-die life insurance trust,” can help with complex estate planning.
To establish an ILIT, you will need the assistance of a qualified estate planning attorney. The cost for their services typically ranges from $2,000 to $5,000.
While these costs may seem substantial, they are minimal compared to the potential savings in estate taxes achieved through implementing an ILIT.
So, by creating and funding an ILIT with a survivor insurance policy, you can protect your assets and potentially reduce tax liabilities upon death.
Funding an ILIT with Survivorship Life
Funding an ILIT with Survivorship Life- First, the irrevocable life insurance trust is created by an attorney.
- Then, a couple will apply for a survivorship policy with a reputable insurance company and a qualified insurance agent.
- Couples usually gift the amount required for the premiums to the ILIT.
- The ILIT will make the required payments to the insurance company.
- Since the trust is the policy owner and beneficiary, the death benefits will not be included in your taxable estate.
- The proceeds from the survivorship policy are then paid to the trust after the death of both partners.
- The trust distributes the life insurance death benefits as specified in the couple’s trust document.
Survivorship Life for Wealth Transfer
Survivorship Life for Wealth TransferLast-survivor life insurance policies can be valuable for families with moderate wealth who want to optimize their overall net worth.
Joint survivor life insurance can be an excellent long-term investment to pass down the maximum amount to your children.
When evaluating coverage for our clients, we present them with illustrations demonstrating the internal rates of return on the death benefit at different ages.
These rates can be compared to the returns on their other standard investments, helping them determine if second-to-die insurance is a valuable tool for growing their estate.
It’s important to note that the earlier one passes away, the higher the rate of return on premiums paid. Therefore, viewing second-to-die insurance as a conservative asset with comparable returns can benefit those living longer lives.
Using an Annuity to Buy Survivorship Life
Using an Annuity to Buy Survivorship LifeAffluent clients often deliberate whether a single lump sum payment or multiple installments is better for funding their joint life insurance policy.
A single premium or a limited-pay insurance policy is usually not recommended unless your survivor policy is part of a more complicated estate planning strategy.
So, how can you avoid paying your premiums for your entire life?
Annuity arbitrage is a strategy that can be highly effective in funding a survivorship policy requiring multiple premium payments.
The concept involves purchasing a survivorship life insurance policy and a single premium immediate annuity from different insurance companies.
The primary objective of annuity arbitrage is to generate a higher interest rate through the annuity compared to the interest earned on the cash value within the life insurance policy.
In this strategy, if both individuals covered by the policies pass away before receiving all the payouts from the annuity, any remaining balance will be given to their beneficiaries along with the life insurance benefits.
The advantage of utilizing this approach lies in contributing only a predetermined sum towards the life insurance policy without directly investing in its cash value.
This proves particularly beneficial for those with above-average life expectancy since they won’t need to make additional payments.
Buying Survivorship Life Insurance
To ensure the best policy for your family’s needs, it is important to research and understand the process involved thoroughly.
By gaining knowledge about this subject, you can make an informed decision that aligns with your goals of transferring wealth or effectively planning your estate.
QUALIFYING FOR a Survivorship insurance policy
If you think you may need coverage, working with an agent who specializes in handling second-to-die policies is crucial.
Many agents lack the expertise and connections with insurance providers to find the best rates for these types of policies.
Our specialized agents go the extra mile by navigating the market on your behalf. We start our process by asking you a few important questions.
- How much total new life insurance protection do you require?
- How are you and your spouse’s overall health
What is your current financial situation?
When determining the death benefit, it’s necessary to consider your unique estate planning goals, financial situation, and the needs of your beneficiaries.
Also, you should assess the approximate value of your estate and potential estate taxes applicable when you and your spouse pass away.
These policies offer more flexible underwriting, even if one person has health issues or is older. They may still qualify if the other insured individual is in good health.
Several factors, including age, health status, and lifestyle, are considered during the qualification process. Most applicants must undergo a medical examination, which includes blood tests and urine samples.
Plus, insurers typically require proof of income and assets if you need a high-face-value survivorship policy.
We will select the best carriers based on your personal information, medical history, and financial background.
By partnering with one of our experienced financial advisers, you can have peace of mind knowing that we will take all necessary steps to secure optimal coverage at a reasonable cost.
Buy Guaranteed Survivorship Life
Buy Guaranteed Survivorship LifeWhen comparing carriers, it is important to focus on life insurance policies that offer guaranteed coverage for your entire lifetime.
Survivorship universal life (SUL) insurance provides a cost-effective option with a guaranteed death benefit and limited cash value growth.
However, if you’re looking for higher cash accumulation, consider survivorship whole life or indexed universal life (SIUL) policies, which are more expensive.
Please remember that some last-survivor insurance plans do not offer guarantees, and they can lapse if interest rates decrease or the cost of insurance increases.
If you purchased an adjustable policy that is not performing, please read our second-to-die insurance problems article.
We have provided a sample rate chart that shows the guaranteed costs of lifetime coverage for SUL insurance.
| Ages | Annual Premium | Death Benefit |
| 60/60 | $10,100 | $1,000,000 |
| 65/65 | $13,200 | $1,000,000 |
| 70/70 | $18,200 | $1,000,000 |
| 75/75 | $24,100 | $1,000,000 |
If you would like to explore customized survivorship life insurance quotes for your family make sure you check out our calculator.
We’ll compare top insurers to find you the best quotes. Remember, these initial estimates may require adjustments to fit your unique needs perfectly.
For a tailored plan and more advice, we’re here for you. Reach out to us at 877-249-1358 or fill out our form to start securing your second-to-die life insurance policy today!
Survivorship Life Insurance Rates
Choose a Highly Rated Insurance company
Choose a Highly Rated Insurance companyIf you require survivor protection, the insurance company you choose also needs solid financials.
Rating agencies assist policyholders by assessing a grade based on each insurance company’s financial strength and claims-paying ability.
Here is a shortlist of companies offering affordable SUL insurance policies with excellent ratings from the Better Business Bureau, AM Best, and J.D. Power.
Best Survivor Life Companies
| BBB | AM Best | JD Power | |
| American General | A+ | A | 718 |
| John Hancock | A+ | A+ | 739 |
| Lincoln Financial | A+ | A+ | 744 |
| Mass Mutual | A+ | A++ | 780 |
| Mutual of Omaha | A+ | A+ | 766 |
| Nationwide | A+ | A+ | 806 |
| Pacific Life | A+ | A+ | N/A |
| Principal Financial | A+ | A+ | 774 |
| Protective Life | A+ | A+ | 742 |
| Prudential | A | A+ | 770 |
FAQ: Survivorship Life Insurance
FAQ: Survivorship Life InsuranceWhen does the insurer pay the death benefit in a survivorship life policy? This policy is designed for married couples and provides a payout only after the second spouse’s death.
What is guaranteed survivorship universal life insurance? SUL provides contractual guarantees that coverage will continue as long as premiums are paid, regardless of cash value performance. It has a small cash value component, resulting in lower fees and expenses than other policies.
Do survivorship insurance policies have any cash value? Survivorship insurance is often purchased for the death benefit, not for building cash value. However, whole, variable, and indexed universal life policies can accumulate tax-deferred cash value over time, although it is often unused by policyholders.
Why are millionaires buying life insurance? Affluent couples acquire life insurance because it provides a safe return on investment through its death benefit. The tax-free nature of the proceeds makes it an attractive option for smoothly transferring wealth to beneficiaries or covering estate taxes.
What is the difference between joint life and survivorship life insurance? There are two types of joint life insurance policies. The first type, “first-to-die,” pays out a benefit when the first insured person dies. The second type, commonly referred to as survivorship or “second-to-die” policies, only provides a payout after the passing of both people.
What are the disadvantages of last-survivor life insurance? Survivorship insurance can be more expensive if one partner has health issues. Plus, it provides no financial assistance to the surviving partner since it only pays out after both policyholders die. Further, dividing or terminating the policy may be difficult in divorce.
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Eric acquired his love for quantitative analysis while getting his business degree from Ferris State University, which provided a solid foundation for his analytical approach to financial planning.
Eric Van Haaften, LUTCF
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