A second-to-die policy is intended for married couples who wish to share a life insurance policy with particular beneficiaries, such as children and grandchildren. After the final survivor dies, the life insurance company will pay out to the beneficiaries. We’ll look at what a second-to-die insurance policy is and what to think about before purchasing this type of life insurance.
A survivorship universal life insurance policy is another name for a second-to-die policy. The death benefit is only given to the beneficiaries when the second policyholder dies, as the name implies.
This policy may be particularly popular among married couples. However, it is a possibility for every couple who has a joint financial interest. Couples in a civil union, cohabiting, or business partners are also possible candidates for a second-to-die insurance.
In many situations, married couples utilize this form of policy to pass on riches to their children. However, other partners, especially business partners, may choose to use this insurance option.
The primary distinction between this insurance and others is that the surviving partner will not get any benefits if the first spouse dies. Instead, the insurance firm keeps the policy funds until the surviving spouse dies.
Second-to-die plans may have a financial value that grows over time. As you become older, your cash worth increases to meet increased annual premiums. The cash value of your coverage will rise tax-free over time.
How Second-to-Die Policies Function
In general, this sort of policy is intended to pay estate taxes or transfer money to surviving heirs. To fund the death benefit, policyholders will pay annual premiums. After both policyholders die, the insurance company will pay the death benefit to the policy’s beneficiary.
A second-to-die policy’s purpose is to reduce a surviving partner’s tax burden. Instead of paying federal estate taxes following the death of the first spouse, the surviving spouse can avoid depleting their estate tax reserves.
Second-to-die plans resemble joint insurance policies, which are another sort of shared life insurance between two individuals. A “first-to-die” provision is commonly included in joint life insurance policies. After the first covered individual dies, the remaining partner receives a payout. Some combined life insurance plans, on the other hand, are written as second-to-die contracts.
The Advantages of a Second-To-Die Insurance Policy
Here are some of the benefits of a second-to-die policy:
Less expensive. Premium payments for a second-to-die life insurance policy are typically much lower than paying two separate premiums for the policyholders.
It is simpler to qualify. Poor health might make it difficult to secure a coverage with typical life insurance policies. Because there are two policyholders, an insurance can be obtained even if one spouse is in poor health.
Tool for estate planning. A life insurance coverage might help with estate planning. It will not only assist with tax planning, but it will also pay a death benefit to your beneficiaries.
Customizable. You can engage with an insurance firm that provides adaptations for your specific scenario while selecting a policy.
The Downsides of a Second-To-Die Insurance Policy
There are some possible drawbacks to consider as well:
If the partners separate, the issue becomes complicated. A divorce might lead to difficult conversations about how the policy will be handled.
There are no rewards for the surviving partner. In cases where policyholders have eliminated one or more beneficiaries but have continued to pay premiums on the policy, the surviving spouse will not get a death benefit.
The final payment may be made decades later. If one couple outlives the other, the beneficiaries will have to wait a long period before getting a death benefit.
When Is a Second-To-Die Policy Beneficial?
A second-to-die policy is not appropriate for every circumstance. However, in certain circumstances, it is the best option. This insurance is typically purchased by rich families with the intention of transmitting cash to their heirs. It’s not a smart choice if either surviving spouse would struggle to make ends meet if the other died. If either spouse need a death benefit to satisfy financial responsibilities, it’s best to choose plans that prioritize both couples’ financial well-being.
Life insurance can assist you safeguard your heirs’ interests. If your spouse will not require a death benefit to make ends meet, a second-to-die life insurance policy is an inexpensive option to provide for additional dependents.
Advice on Life Insurance
The best life insurance coverage for you depends on your specific circumstances. Finding a competent financial advisor does not have to be difficult. AdvisorLink’s directory connects you local advisors, and you may interview your advisor matches for free to choose which one is best for you. Get started now if you’re ready to locate an adviser who can help you reach your financial objectives.