Many individuals are already familiar with the concept that most families across America need life insurance. Most people have already heard about whole life and term life insurance policies because these are the most common types of policies and are the most frequently discussed kinds of coverage out there. But there are other specific kinds of life insurance policies that could benefit you depending on your needs.
Who Might Benefit from a Policy Like This?
Falling into a category such as being a high income earner or self-employed individual may also mean that you also need to consider the specific types of policies. One less popular policy that does still provide major benefits for individuals who are the right fit is known as survivorship life insurance. This is most commonly used to insure business partners or married couples because it gives coverage for two individuals at a lower cost than two separate life insurance policies. There are two primary types of survivorship policies; first-to-die and second-to-die. Survivorship coverage is also available in whole life, modified whole life, and term life insurance.
What Is First-to-Die Life Insurance?
A first-to-die life insurance policy pays out the policy proceeds when the first insured policy holder passes away. This is most commonly used by business partners who will use the funds for the surviving partner to buyout the deceased partner’s business interest and cover any other expenses that could result from the partner’s death.
Many dental groups and physicians, for example, form partnerships or LLPs and use first-to-die life insurance for this purpose. Married couples might also benefit from using a first-to-die survivorship life insurance policy because it gives the surviving spouse living expense money that can significantly help when the spouse has to adjust to life on his or her own.
While this structure might initially appear to be very similar to traditional term life insurance policies, the primary difference is that both spouses or partners are covered under one policy. Overall this is less expensive than getting two individual policies and can be very beneficial if on his or her own, one policy owner appears to be uninsurable.
What Is Second-to-Die Life Insurance?
Second-to-die life insurance doesn’t pay the death benefit to a beneficiary until the second insured individual passes away. This policy is most often used by wealthier couples to minimize the impact of estate taxes for their beneficiaries. The death benefit from a second-to-die life insurance policy is separate from the deceased individual’s estate and is therefore not subject to income tax or estate taxes. In the event that you do want the benefit to be estate tax free, the policy cannot be owned by the insured individual.
A spouse inheriting the funds does not have to pay estate taxes so estate taxes only become due at the death of the second spouse. Family owned businesses may also choose to use second-to-die life insurance policy to help generate funds to cover taxes and provide other forms of cash flow in the event that someone passes away.
Advantages of These Policies
It is usually less expensive to insure two individuals in a survivorship policy rather than buying two distinct policies. One partner might not be able to receive a policy because of a hazardous occupation, his or her age, or a health condition. This means that a survivorship life insurance policy may be one of the only options.
What Are the Disadvantages of These Policies?
First-to-die policies are terminated when the death benefit is paid, meaning that the surviving partner is left without a life insurance policy and may have to go through the process of applying for a new one. This can be extremely problematic if the individual has developed a health condition in the interim or has grown significantly older, making it much more expensive or impossible to obtain a policy. This is why it is strongly recommended that you consider all of your options comprehensively before moving forward with a survivorship policy.
You need to understand the pros and cons of this type of policy as opposed to individual life insurance coverage options. While there is certainly benefits, this can be a major detractor. Second-to-die life insurance protection is not a good choice if the surviving partner needs funds from the benefits to pay business expenses or living expenses when the first partner passes away. When purchasing any kind of life insurance policy, you should consider the short term benefits as well as any long-term issues. This is the best way to compare one policy with another and determine which one is the right solution for you.
In some situations, you might not want a survivorship policy on its own, but you might prefer to add a rider to another life insurance policy. This might be an option for you if you want to receive cash value benefits, but there are downsides to taking this approach. Talk to your life insurance agent about your options so you can make an informed decision about a policy versus a rider. There are pros and cons to policies and riders, so it’s best to look at the policies side by side so that you can apply for the one most appropriate for your needs. Weighing all the facts requires thinking about what you want to happen after one or both parties on the policy pass away. Planning ahead for the future of the surviving spouse as well as the beneficiaries of the policy is the best way to ensure that you choose the right policy for you.
What About a Rider?
If you choose to add a rider onto a whole life second-to-die life insurance policy, the surviving partner may be eligible to access cash value as collateral to receive low interest loans, but the unpaid loan balance will ultimately be deducted from the death benefit. This could leave heirs without enough money to cover taxes. Most people who are planning ahead and using life insurance to accomplish their goals want to make things as easy as possible for their heirs, so you should set up a meeting with an experienced life insurance agent before applying for a policy. Determining the right policy for you should be done after carefully evaluating all the options, and understanding the full implications of a possible policy can be done much more easily with the help of an experienced agent.
Why You Need to Comparison Shop When You Are Considering a Survivorship Policy
It is important to have all of the relevant facts and consider the various companies out there offering survivorship policies. This is why you want to shop around and speak with an experienced life insurance agent as soon as you believe that you may be interested in a policy like this. A life insurance agent can use his or her experience to help guide you in the right direction towards a rider or survivorship policy that may be best suited to your individual needs. Make sure you take notes about the policies you’re considering ahead of time.
Having a life insurance agent that you trust also gives you the opportunity to ask all of your questions immediately so that you can make an informed decision about your future. In certain situations, survivorship policies certainly meet a need but you need to carefully consider the advantages and disadvantages of this policy type to determine whether or not it is appropriate for your individual situation. Do not hesitate to contact a life insurance agent to learn more.
Make sure you get all your questions answered upfront when considering a survivorship policy. While there are many different kinds of life insurance policies out there and this is a good thing so that you can select the one best for you, it can also be difficult to understand the elements of all the different policy kinds. This is why your life insurance agent can help you do a comparison of all the different policy types. If a survivorship life insurance policy is the right one for you, then you can determine which company is the best one to work with.
The Good News
The good news is you’ve reached the right place! We’re an independent life insurance agency that has all the products on the market with over 60 A rated life insurance companies. We shop around to get you the best rate, at no extra cost to you! If you have any questions regarding survivor ship life insurance, give us a call at 888-492-1967 or hit the chat button below. Welcome to InsureChance!
