Survivorship Life Insurance / Second to Die
Survivor Life, also called “second to die,” is a type of life insurance that allows you to insure two or more people on one policy. When three or more are on the policy, it is generally being used by business partners, and the insurance benefit will be paid out when the last insured person dies. This allows the beneficiaries the money to either buy out the business or hire new individuals to run it. When the insurance is on a married couple, the purpose is to create a legacy for children or for a favorite charity whenever the 2nd (or last) insured dies.
When purchasing a second-to-die policy, you need to be sure that insurance is not needed on the first person to die, or that you have an additional, perhaps smaller burial policy for the first person. If a surviving spouse will need money if the primary wage earner dies, then you should look for Joint Life or “first to die.”
Survivorship life insurance is cheaper than having separate polices and may even be cheaper than simply having a rider on a primary policy. That’s because, while either person is insured, the benefit will only be paid once. This can also be a less expensive alternative if one person has health issues that would result in a decline or a rated policy.
Survivorship life insurance is not always easy to find, and it has both advantages and disadvantage:
Advantages
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The policy should have a lower premium than two separate policies.
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Since only one benefit will be paid, and since there is a good chance that the healthiest insured will live a long life and be the last to die, the underwriting is often more lenient..
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The policy can be written as either a term policy or as a universal. The universal will accumulate a cash value.
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On the universal life variation, loans are available, although all the partners must sign. Additional riders such as accident riders and children’s riders may also be available.
Disadvantages
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The policies are not flexible. Neither the premium nor the face value can be changed once the policy is written
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Since the premium is based on the average of the combined ages, the policy will have a higher premium than the younger of the insureds would probably have. The option works best if the insureds are close to the same age, or if one has health issues that would otherwise be difficult to insure.
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Policies are difficult to find and may be offered by companies with a lower rating.