Survivorship life insurance is set up in a very special way. It will provide cover for both a husband and wife or say two business partners. The policy does not however, pay out until both the people covered in the policy have died.
All life policies meets needs. Those needs can vary from peace of mind to providing income for a surviving spouse or meeting financial obligations such as burial costs or mortgage payments. Survivorship life policies are surely unique however in the specificity of its purpose. It is not normally taken out except as a vehicle for safeguarding an inheritance from estate taxes, for providing for special needs children after their parent's death or more rarely as an ongoing contribution of some kind to a charity.
Using survivorship life insurance as part of your estate planning process.
If you're very wealthy, your death can result not just in your heirs getting a large inheritance but also in them having to pay high estate duties. Fortunately survivorship life policies can be set up in a way which enables your inheritance to be kept largely intact. However these estate planning measures need to be made with care and skill so this form of life policy needs your tax expert, legal representatives and your insurance agent to work together to get the best possible outcome.
The measures put in place to ensure the proceeds of a survivorship life policy are used to offset estate duties can take different forms. One measure can be placing the policy in the ownership of a third party such as a family trust or an irrevocable life insurance trust so the proceeds of the policy are excluded from your estate proper. Another measure can be gifting which is the transfer of part of the death benefit to your heirs up to the exclusionary amount defined for a specific tax year.
It is very, very important to have good tax advice in setting up a survivorship life policy. The use of third party ownership of this type of policy aims to take advantage of various tax laws. If the ownership of the policy is set up carefully the proceeds may finish up being both free of income tax and exempt from estate taxes.
Using this type of policy to meet the needs of a dependent child
The reason for taking out a survivorship life policy may not be the most usual reason, which is to limit estate taxes. The reason may be to meet the needs of a dependent child. This would normally occur when a child has some form of disability or a serious health condition. The policy ensures the care and wellbeing of the child after both parents have died.
It's a difficult and challenging situation for parents to find themselves in, having to provide for a special needs child after their death. With the proceeds of a survivorship life policy providing a guaranteed income for a trust, parents know their care and devotion can reach beyond the grave. The trustees of such a trust then have the duty of acting on the parent's behalf in caring for their child.
The cost of these policies
Because a survivorship life policy covers two people the cost of such a policy may be cheaper than the cost of insuring the two people separately.
Underwriters may treat such a policy more liberally because the policy isn't paid out until the second person dies. They may also allow inclusion of the second person on such a policy when that person would be excluded from a single policy for health reasons. Once you have a quote from a reputable insurance company you will be able to look at the usefulness of this type of policy in meeting your needs.
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