There are a variety of circumstances that could stir one to utilize Survivorship Life (SL), which is also called second-to-die or last-to-die life insurance. This article will explain 5 of those circumstances that may want to be considered.
- To provide estate liquidity at the second death of a married couple – Couples most often use SL where there is a substantial estate and the couples plan to make heavy use of the marital deduction. Use of the unlimited marital deduction, either outright or in conjunction with some form of marital trust, permits deferral of all or most federal estate taxes until the second death. SL provides liquidity when it is most needed, upon the second death, often at the lowest possible outlay.
- To protect two-career families – If both husband and wife have successful careers, they may be able to tolerate the loss of one income, but the loss of both incomes would leave remaining dependents with no support. SL provides a relatively low-cost method of protecting the family against the loss of income of both parents.
- To provide key person business insurance – In many cases, the loss of a single employee in a key area may present some transitional inconvenience, but it is not insurmountable. Often, companies cross-train employees or assign some overlap of responsibility among key executives to minimize the risk of loss of just one key employee. However, the loss of two key employees in a sensitive area may cause serious disruption in a development effort. Similarly, the loss of one key financial backer may be acceptable, but the loss of two could seriously jeopardize a company. In these types of situations, survivorship life may provide the most economical means of protecting the company.
- In split-dollar plans – The same rationale justifying the use of a split-dollar single life applies to survivorship life. One should calculate the annual taxable cost of insurance by taking into account the probability of both insureds dying in a given year, rather than the costs used for single life insurance policies. Consequently, the tax cost to the employee is many times lower than what the cost would be on separate policies at the same ages.
- To help fund charitable bequests – Survivorship life can provide the resources necessary to fund charitable bequests after both husband and wife have died. Also, when properly used in combination with contributions of appreciated assets to charitable remainder trusts, couples can replace all or most of the assets passing to a charity with insurance proceeds at a low overall premium cost. In many instances, the combined income and estate tax savings will be more than the total premiums paid on the insurance.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM