Survivorship Life Insurance

Example

“The wealthy couple purchased survivorship life insurance to ensure their children would have funds to pay estate taxes after both parents passed away.”

Memory Tip

Think 'Second-to-die' - the policy waits until the SECOND person dies to pay out, helping survivors with final expenses.

Why It Matters

This insurance is crucial for married couples with substantial assets who want to minimize estate taxes and ensure wealth transfer to heirs. It's typically less expensive than buying separate policies because the death benefit is delayed until both spouses die, reducing the insurance company's risk.

Common Misconception

Many people think survivorship life insurance pays out when the first spouse dies, but it actually only pays after both insured parties have died. Some also mistakenly believe it's always cheaper than individual policies, but this depends on the ages and health of both insured parties.

In Practice

John and Mary, both 65, want to leave $1 million to their children but are concerned about estate taxes. Instead of buying individual $500,000 policies costing $8,000 annually each, they purchase a $1 million survivorship policy for $10,000 per year. When John dies at 78, no benefit is paid, but Mary continues the policy. When Mary dies at 82, their children receive the full $1 million death benefit tax-free to help cover estate settlement costs.

Etymology

The term combines 'survivorship,' from the legal concept of joint survivorship where one party inherits the other's rights upon death, with 'life insurance,' originating from 17th-century maritime insurance practices.

Common Misspellings

Related Terms

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