Ever hear of second-to-die life insurance? This is an insurance plan that a couple will take out jointly and own as one policy. The plan will pay out benefits only after the last surviving person on the policy passes away.
This is different from survivor benefit life insurance because the surviving partner on the policy does not receive any benefits after the first policyowner dies.
After both policyowners of the second-to-die life insurance policy, the death benefit will go to a couple’s children, to a charity or perhaps to pay any tax liabilities which may be owed after both spouses pass away. In the U.S. there’s a marital deduction which permits you to leave an unlimited cache of assets to your surviving spouse – and with no taxes payable at your death. Those assets then become part of the estate of the spouse and if it includes a second to die life insurance
In the event the worst happens, those assets then become part of the estate of the surviving spouse, and if that estate includes a second-to-die life insurance policy, those proceeds could be used to help pay any taxes.
It pays to consider the tax ramifications which might arise for small businesses. That’s why business partners should also purchase second-to-die policies.
The Major Reason to Buy Second-To-Die Life Insurance Policies
When you’re protected with a second-to-die life insurance policy, your beneficiaries can use those proceeds of your policy to pay outstanding taxes. What does that mean? I might mean they won’t be forced to sell your family home or to liquidate assets to pay the tab.
A second-to-die life insurance policy can also act as a cornerstone in constructing a financial plan aimed at reducing the tax burden to wealthy individuals. The technique involves creating trusts and using second-to-die life insurance policies as part of the overall estate-planning architecture.
Advantages to Second-To-Die Life Insurance Policies
1. Second-to-die life insurance is usually considerably less expensive than life insurance, but that pricing can be dependent on the blend of the ages of the couple involved. Premiums are based upon the “joint life expectancy” of the couple.
2. It’s often easier to qualify for a second-to-die policy than it is to qualify for individual life insurance policies. As both of those insured must die before a benefit is payable, the insurance company will be less concerned that one partner might not be in the best of health.
3. Estate Preservation. A second-to-die policy appeals to individuals who feel strongly about preserving their estates with the life insurance paying the taxes.
4. Second-to-die life insurance is usually marketed as a method of building an estate and not simply protecting that estate from taxes. In much the same way that individual life insurance functions, the death benefit resulting from a second-to-die policy can ensure that certain people receive a benefit – even if you’ve blown every dime of your potential estate.
5. Second-to-die life insurance also makes excellent sense for anyone who doesn’t have a lot of money, but who wants to leave an estate for their children or other dependents.