Important Policy Features of Second-to-Die Life Insurance

Competition and special needs have fostered the development of a number of new Survivorship Life (SL), which is also called second-to-die or last-to-die life insurance, product innovations including:

  • Graduated premiums – Graduated premium policies that start with lower premiums which increase over time may make an SL plan more affordable for couples who expect to have a greater premium-paying capacity over time. They should exercise care in selecting these policies, however, because they may fail if the policyowner(s) are unable to pay the increasing premiums. Also, if the policy is put in trust, as the premiums increase they may exceed the amount the policyowner(s) can give the beneficiary without adverse gift tax consequences.
  • Substitute insured – Some companies will permit substitutions of insureds, with evidence of insurability. This feature is attractive when SL is used in business insurance applications such as to fund partnership buy-sell agreements where partners may change and in key person insurance situations.
  • Enhanced death benefit – Death benefits payable to an irrevocable trust on a policy transferred by the deceased within three years of death are included in the estate. To cover this contingency some companies will increase the death benefit during the policy’s first three years to cover the additional estate tax.
  • Guaranteed death benefit – Universal life SL policies typically do not guarantee the death benefit. Some companies, however, provide death benefit guarantees on their universal life SL policies.
  • First-death rider – SL policies with this rider provide a specified death benefit to the surviving insured to cover probate, funeral, and other expenses associated with the first death.
  • Survivorship riders – These riders, which are attached to single life policies on a husband or wife, can be tailored to mimic a SL policy while providing important additional flexibility (see below for more details).
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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