SURVIVORSHIP LIFE INSURANCE
If you anticipate accumulating over $1.3 million in your lifetime (which can be likely if you start young), then having a survivorship life insurance policy to cover both you and your spouse will prevent your heirs from having to pay estate taxes upwards of 55 percent on the money that they will inherit from you. Survivorship life insurance, or a second-to-die life insurance policy, pays out whenever the second (last-surviving) spouse dies. Here’s how survivorship life insurance works:
As a couple, you and your spouse will set up a life insurance trust to buy a life insurance policy that will pay your beneficiaries after both of you die. Consulting an estate tax attorney will give you the answers you need to set up a trust to take the best advantage of this type of insurance.
Your heirs can then use the policy proceeds to make up for the loss of money due to payment of estate taxes.
Because the policy proceeds aren’t paid out until you and your spouse both die, the price of survivorship life insurance policies tend to be less than other policies.
A benefit of survivorship life insurance policies is that it doesn’t matter who dies first. As long as both of your wills each leave all the assets to the other person, you will be organized. Then, upon the death of the surviving spouse, the trust that has been paying the policy will pay your beneficiary to offset estate tax costs.
If you plan to accumulate over $1 million, it makes excellent sense to get a survivorship life insurance policy. Such policies prevent your heirs from losing up to half of your estate to the Federal government. Also, if you plan to leave money for charitable purposes, this type of insurance ensures there will be enough of your money left to do so through the trust that you establish. A third reason to get survivorship life insurance is if you have a special needs child who will survive you and need to be taken care of. The trust you establish for this type of insurance will be used as the source of guaranteed dollars to be used to take care of your surviving special needs heir.
Just keep in mind…
that this plan will pay out only once you are both deceased and, of course, you need to remain married for these provisions to be beneficial. For immediate payout to your family in the event that you pass away, one of the other policies might be a better choice. Reviewing the various types of life insurance is helpful in determining which type will best meet your family’s needs. Once you find an insurance professional to assist and clarify the differences based on your own personal circumstances, you will be able to see what your current assets are and budget for insurance premiums. You will also want a financial planner to give you advice on how to make the most of the money that you do have. If you have sizable assets already, an estate planner is another professional whom you will wish to consult.
Above all, you want to be sure that your family will be able to survive financially in both the short and longer term in the event of your untimely death. Once you are clear about that being the main goal of life insurance, you can start to get a bit more creative, and begin thinking about it as a different form of financial tool as well. Let’s look at this topic in more detail now.