What is survivorship life insurance?

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Survivorship life insurance is a type of joint life insurance policy designed to cover two people (usually spouses) instead of just one. It only pays a benefit after both policyholders pass away. That can be useful for some couples, but because this type of insurance only provides one benefit payout, it may not be appropriate for most others. When two partners rely on each other's income and family care contributions, each should generally have their own policy and name the other as beneficiary. However, there are situations where a single survivorship life insurance policy (and payout) may be helpful or even preferable. In this article, we'll explain:

A survivorship policy is a form of joint life insurance.

Here's how it works:

There are two types of joint life insurance policies. In a "first-to-die" policy, the life insurance company pays a benefit after the first insured person dies. "Second-to-die" policies are more commonly called survivorship policies, and the benefit is only paid out after the second (surviving) person passes away. For obvious reasons, these policies can't be used to provide income replacement for a surviving spouse as part of their retirement strategy1; instead, the payout must go to the couple's beneficiaries.

It's important to remember that the beneficiaries of a survivorship policy don't have to be the couple's children or relatives. This type of policy can also be used to simplify the transfer of assets to a non-relative, such as a friend or business associate. For that matter, the beneficiary doesn't even have to be a person – the payout can be used to leave a legacy for a favorite charity or religious organization or as funding for a family trust. That's why these types of policies are often used for estate planning strategies.

Second-to-die coverage is typically purchased with a permanent whole or universal life policy instead of term life insurance. The reason is simple: most of the couples buying a survivorship policy don't want temporary protection. If the policy term ends before both partners die, there's no death benefit. Permanent life insurance also builds cash value which can be drawn on if needed.2,3 That's why many life insurance companies, including Guardian, don't offer a term life insurance option for survivorship coverage. However, Guardian does offer a permanent joint life insurance: EstateGuard® – a first-to-die whole life insurance option.

Situations where a survivorship policy can be useful

  • Estate planning strategies. Survivorship life insurance is often used by high net worth couples who want to lessen the tax burden for their children after they die. A surviving spouse doesn't have to pay taxes after the first spouse dies. However, if their resulting assets exceed the federal exemption level (currently $11.7 million), then federal estate taxes – which can run as high as 40%4 – must be paid after the second spouse dies. Currently, 12 states and the District of Columbia tax estates at an even lower threshold, and six have inheritance taxes.5 A survivorship policy can help provide immediate cash flow to pay estate taxes and related costs once both spouses die. It can also help equalize the distribution of assets among heirs, especially when assets (like a family business) can't be easily sold. Before buying insurance or other financial products for this purpose, you should consult with a personal finance professional and tax professional who can provide appropriate tax and investment guidance.
  • Business succession planning strategies. Survivorship policy owners can be any two people, including business partners. A survivorship policy can provide the liquidity needed to transfer business ownership if both partners die. Or, the death benefit can be divided among the partners' heirs to help ensure they are financially prepared to take over the business.
  • Special-needs planning strategies. Survivorship insurance helps parents who have a special-needs child(ren) ensure their children will be taken care of after they die. Survivorship policies are sometimes used to fund a Trust to provide care for their special needs children.
  • Medical issues workaround. A survivorship policy can be a more cost-effective way to get coverage in situations where one spouse cannot afford individual life insurance due to a medical condition, but the other is in good health.
  • Charitable giving. A survivorship life policy can be set up to leave a legacy to a specific charity upon the death of both policyholders. The flexibility of universal life can make it valuable for this use. It allows you to grow tax-deferred cash value that can still be accessed, as well as raise or reduce your premiums as needed.6

Policy cost and options to consider

Generally speaking, it costs more to buy two individual $1,000,000 policies than to get a single survivorship policy for $1,000,000. The reason is clear: With two individual permanent policies, insurance companies must plan for a $2,000,000 payout; but when a single life insurance policy covers two individuals, the total payout is only half as large. Joint life expectancy is also longer than individual life expectancy (because typically, one insured dies sometime after the other), so second-to-die policies may be more affordable than first-to-die policies. But as with any life insurance, the actual policy cost can vary widely based on a number of factors, including age, health, lifestyle, type of insurance, and the insurance provider. Guardian and other insurers also offer riders – optional features – to tailor each policy to the policyholders' specific needs.7 Some examples include: 

  • Estate Preservation Riders: These are used in certain tax planning circumstances that may require extra death benefits in the first years of the policy. 
  • Level Term Rider: Offers extra coverage on each insured until age 95. The rider, which must be applied for individually by each insured, can usually be converted to a whole life coverage if done before a set age limit. 
  • Waiver of Monthly Deduction for Death and Disability: This benefit, which is only applicable to one of the insureds, can help ensure the policy will remain active by waiving premiums if the couple's income is reduced due to death or disability.

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How to buy a survivorship life insurance policy

You should start by discussing, as a couple, whether a joint life insurance policy – with a single death benefit – is the best option for your needs. One way to find out more is by looking at other life insurance policies and coverage options, such as trying a term life calculator and quote tool from an insurance company like Guardian. If you and your spouse or partner are still interested at that point, we suggest talking to a knowledge financial professional who can answer your questions and guide you to the right type of coverage. If you don't have someone to discuss insurance with, Guardian can help you find a nearby financial representative who will take the time to learn about your situation and present you and your partner with options that fit both your needs. 

Frequently asked questions about survivorship life insurance

What is survivorship life insurance?

Survivorship is one of two types of joint life insurance – a policy that covers two individuals. The difference in the two types of coverage has to do with when the policyholders die. With survivorship coverage, beneficiaries receive a death benefit payment only after the second (surviving) person passes away. The other type of joint coverage pays a benefit after the first policyholder dies.

What is the purpose of survivorship life insurance?

It can be helpful depending on your life circumstances and financial situation. Survivorship insurance is often used to help protect and transfer assets to the beneficiaries of an estate or to help business partners make a successful transition to a successor once both partners have died. Survivorship also can be used to create a trust for a child or other beneficiary with special needs. Finally, survivorship policies are also sometimes used by two people who want to leave a legacy for a charitable cause. 

How many lives does a survivorship life insurance policy cover?

All joint life policies, including survivorship life insurance policies, are only designed to cover two people. However, those people do not have to be related. For example, a survivorship policy could cover two business partners. 

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Disclaimer

1 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

2 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

3 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

4 https://www.nerdwallet.com/article/taxes/estate-tax

5 https://taxfoundation.org/state-estate-tax-state-inheritance-tax-2021/

6 Universal Life Insurance may lapse prematurely due to inadequate funding (low or no premium), increase in cost of insurance rates as the insured grows older, and a low interest crediting rate. This does not apply to universal life policies which have a secondary guarantee, but if the secondary guarantee requirements are not met the policy will most likely lapse.

7 Riders may incur an additional cost or premium. Riders may not be available in all states.

Policy form number: 21-SWL

This article is for informational purposes only. Guardian may not offer all products discussed. Please consult with a financial professional to understand what life insurance products are available for sale.

2021-130487  20240131