Survivorship Life Insurance – Easy Estate Planning Guide

Many wealthy people use survivorship life insurance, also known as "second-to-die life insurance" and  “ joint survivor life insurance" to protect their estate.

A survivorship life insurance policy is set up to insure married couples, and does not pay out until the surviving spouse dies.

Survivorship life insurance allows wealthy couples with significant assets to pass them down to children. Second-to-die life provides liquidity to avoid having to sell off everything at fire-sale prices to pay federal estate taxes owed after both spouses pass away.

The beneficiaries of the policy when used as part of an estate plan are normally your heirs, or a trust.

Since, spouses do not need to pay estate taxes when assets are passed between married couples, standard life insurance that pays out on the first spouse’s death is normally not needed.

This is the sole reason a  second-to-die life insurance policy is used because the life insurance death benefits will be paid after both of you pass away.

survivorhip life insurance, second to die life insurance

Estate Plans with Survivorship Life Insurance

If you think your estate is going to eventually create a tax problem, getting started sooner will save you a lot of money on your insurance policy.

Wealthy couples should consider the value of their current estate, and then account for the growth of their estate during their lifetime. An estate without any tax current tax liability, could eventually grow large enough to be subject to estate taxes.

We normally recommend talking with an estate planning attorney to get an estimate on the amount your estate will owe in taxes now along with future growth projections.

This allows you to purchase a policy now, when you are younger, and policies are cheaper to cover your current and future estate planning needs. The death benefit from a second-to-die life insurance policy will eventually help pay those taxes.

Federal Estate Tax in 2017

Under federal tax law, there is a marital deduction permitting you to leave an unlimited amount of assets to your surviving spouse. If you leave all your assets to your spouse, no federal estate taxes are owed at the time of your death. Those assets then become part of the estate of the spouse and might be taxed when your surviving spouse eventually dies.

The rules for couples can be a little complicated. A husband and wife can each get their own exemption, meaning a couple will be able to give away $10.98 million tax-free in 2017 (assuming they haven’t made prior lifetime gifts), but it’s not automatic.

An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But to utilize your late spouse’s unused exemption, a election called portability needs to be made on the estate tax return of the first spouse to die.

This election is required even when no federal tax is due. This can cause a problem for couples who either do not know what portability is or how to elect it.  So, you do not get hit with a surprise federal estate tax bill, we recommend to always plan a head of time and do some estate planning with your attorney.

Things to Remember:

  • Exemption: $5,490,000 (exemption is decreased by lifetime gifts)
  • Portability: Yes (i.e., surviving spouse may elect to use deceased spouse’s unused exemption, in effect, giving married couples an exemption of $10,980,000)
  • Rate: 40% on the value of the estate above the exemption amount

Additionally, attorneys are familiar structuring your total estate to help minimize your tax liability. While, a survivorship life insurance policy is a bit more complex than a standard life insurance policy, its effectiveness depends on how well it is integrated into a comprehensive estate plan.

estae planning with survivorship life

Irrevocable Trust with Survivorhip Life

As your life insurance agent, we normally work with your attorney to construct an estate plan to lower your tax burden. This is accomplished by creating an Irrevocable Life Insurance Trust and funding it with a survivorship life insurance policy as part of an overall estate planning strategy.

  • First, you want to have an Irrevocable Life Insurance Trust set up where the trust is the owner and beneficiary of the life insurance policy.
  •  It is important to remember to have your trust created before the life insurance is purchased and drafted by a qualified estate planning attorney.
  • Then, purchase a survivorship life policy (second-to-die life insurance) from a reputable insurance company and qualified insurance agent.
  • Couples normally gift the amount money required for the premium to the Irrevocable Life Insurance Trust (ILIT).
  • The Irrevocable Life Insurance Trust (ILIT) will make the required premium payments to the life insurance company.
  • Since, the trust is owner and beneficiary of the life insurance policy, the benefits are not included in your taxable estate.
  • Upon both of your deaths, the proceeds from the survivorhip life insurance policy are then paid to the trust.
  • The trust distributes the life insurance death benefits as specified in your trust document.

second to die life insurance

Advantages of Survivorship Life Insurance

  • Favorable underwriting (health problems are OK): Because the policy is based on two lives, underwriters use a different and "more lenient" mortality table than those used for individual policies.
  • Lower premiums: Since, survivorship life insurance policies usually don't build cash value and don't pay out until the second spouse die, it is much cheaper than two individual life policies.
  • Lifetime Coverage: A second-to-die life insurance is a form of permanent universal life, with a guaranteed premium and death benefit for lifetime.
  • Return on investment: Survivorship life insurance usually provide a better ROI then individual  universal or whole life policies
  • Builds your estate. Second-to-die life insurance is excellent method to build an estate, not just insulate it from taxes.
  • Preserves your estate. A survivorship or second-to-die policy assures your estate transfers intact to your heirs, with the life insurance benefit used for paying the taxes.

Applying for Survivorship Life Insurance

There are three important points to remember when applying for survivorship life insurance coverage.

Choose a Reputable Life Insurance Agent

The agent you chose to help you secure coverage is vital to getting approved with a solid company with affordable pricing. Many agents do not routinely sell second-to-die policies and have not developed either the product knowledge or the carrier relationships needed to secure the best premium class for their clients.

A majority of these agents will simply run a spreadsheet of the cheapest prices from multiple insurance companies, and go directly to filling out a formal application.

If you are considering a second-to-die life insurance policy, it is very important to work with an agent who is familiar and comfortable handling large second-to-die life insurance policies.

Our advisers often take many intricate steps to navigate the marketplace on your behalf to find you the most competitive offer. This is how we do it:

First, we ask you a few questions:

  • How much total new insurance coverage do you need?
  • Why do you need the amount of coverage?
  • How much life insurance do you currently have in force now? (this will factor in to how much additional coverage you can obtain)
  • How is your overall health? (you will need to submit to an insurance examination and provide your medical records)
  • How are my current finances? (large policies require financial underwriting, which can include verification of income and net worth)

The answers to these basic questions will allow us to shop your policy with several insurance companies. We will now be able to select the best carriers based on the details of your personal information, financial background, and medical history. This will allow you to save you time an money when shopping for the best rates on survivorhip life insurance.

Our agency often works with successful executives, doctors, and small business owners who require a substantial amount of  second-to-dielife insurance.

We have developed a disciplined and streamlined process to help wealthy clients get approved for second-to-die life insurance policies.  If you would like more information do not hesitate to call us 1-877-249-1358.

Select a Quality Life Insurance Company

Typically, most life insurance companies apply more stringent financial underwriting to applicant’s seeking life insurance with larger death benefits.

Some insurance companies have special criteria for getting approved for a life insurance policy above 1 million, while others may not have a problem with 5 million or more of coverage. Many companies also do not sell survivorhhip or second to die life insurance policies.

If you are in need of a second-to-die life insurance policy, the insurance company you choose also needs to have solid financials.  Ratings agencies assist policyholders by assessing a grade based on the financial strength and claims paying ability of each insurance company.

Buy a Contractually Guaranteed Product

There are many different types of  survivorship life insurance policies such as universal life, variable life, and whole life.

How can you make sense of all the different types of second-to-die life insurance policies, and know that you’re making the best choice?

If you need reasonable rates along with lifetime coverage, then we strongly recommend comparing survivorship life insurance using only contractually guaranteed premiums for your entire lifetime.

This is the only way to get "apples to apples" comparison between competing companies. These guarantees are only found in whole life or  guaranteed universal life insurance (GUL) contracts.

Three competitive and highly rated insurance companies currently offering  contractually guaranteed survivorship life insurance in 2018:

  1. Prudential
  2. American General
  3. Lincoln National

Since, many companies sell life insurance, it is impossible for you to know which carriers can offer you a low cost survivorhip life insurance policy

We have streamlined the process of shopping for life insurance and monitor a network of over 186 of America’s top life insurance companies.

Here is a list of our complete companies which offer affordable life insurance and also offer the highest ratings from the Better Business Bureau, AM Best, and J.D. Power.

AM Best
JD Power
AXA EquitableA+A+752
Banner LifeA+A+N/A
Guardian LifeA+A++760
John HancockA+A+739
Lincoln FinancialA+A+744
Mass MutualA+A++780
Mutual of OmahaA+A+766
Pacific LifeA+A+N/A
Principal FinancialA+A+774