Originally, insurers designed survivorship life policies to revert to single life pricing after the first death. As a result, the mortality charges for the pure insurance protection jumped significantly after the first death. However, reserves and cash values also increased substantially after the first death, reducing the pure insurance protection. Depending on when the first death occurred and whether the older or younger insured died first, a sizable increase in the premiums could be required to keep the level of coverage in place. To avoid the possibility of a premium increase after the first death, insurers designed and priced some policies essentially to include a first death element that would provide enough additional cash value to keep premiums level after the first death. Insurers now design most permanent SL policies to avoid a premium increase after the first death. Some companies even offer a rider (what is essentially a joint life—first death—rider) for additional premium that pays up the policy and eliminates the need to pay premiums after the first death.
However, term/perm plans often are still subject to the risk of a premium increase after the first death. Companies use one of two term pricing strategies. Some companies have two schedules of term rates. The rates they use when both insureds are living are the low second-death rates. This keeps premiums to the absolute minimum while both insureds live. However, after the first death, the term rates jump up to the single life mortality rates, which can be a sizable increase. Other companies use a blended rate both before and after the first death. All else being equal, the required premium for a plan using blended rates will be higher than for a plan using two schedules of rates while both insureds live, but the premium will not increase after the first death.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM