Many people are unaware that life insurance policies can be customized to suit their particular needs and circumstances.
For example, one option, known as survivorship life insurance, may interest you. This type of coverage insures two lives, that of a husband and wife in most cases, and the death benefit is paid when the second insured individual dies. Read also: Why They Call It Universal Life Insurance?
Why these funds are needed?
As a rule, this death benefit is used to pay various estate-settlement expenses, including federal estate taxes, after both spouses have died. Federal tax law includes a marital deduction that allows you to leave an unspecified amount of assets to your husband or wife. If you take that step, no federal estate taxes will be due when you die and your assets will become part of your spouse’s estate. Note that they may be taxed when your spouse dies, and the death benefit from this kind of policy could be used for paying those taxes at that time.
How you will save?
Agents who sell this type of insurance often stress that your heirs can use the proceeds from your policy to pay the estate taxes, rather than selling your home or liquidating other assets to meet that obligation. In addition, the policy costs less than the estate taxes.
In certain cases, the policyholder’s attorney and an insurance agent will develop a financial plan to lessen the tax consequences for wealthy individuals, and survivor life insurance is often part of their estate-planning strategy. Read also: 5 Valuable Life Insurance Tips to Consider When Buying Insurance.
Generally speaking, this type of insurance is less expensive than single-insured coverage. With a survivorship policy, the premium is calculated on the life expectancy of the spouses. Because the insurance company will not have to make a payout until both spouses are deceased, the premium will be much less expensive than buying two individual policies for them.
Qualifying for this insurance
It is also less difficult to qualify for this type of coverage than for an individual life insurance policy. Since both insured must be deceased before a payout is made, insurance companies are less focused on the fact that one policyholder might be in poor health. Often, they agree to write the policy despite the fact that one of the applicants would “uninsurable” according to the standards for an individual life insurance policy. However, be aware that the definition for “uninsurable” also varies from company to company.
Providing for your heirs
At times, survivorship life insurance is sold as a method for building an estate along with protecting it from taxes. Since this is the case, the death benefit from this kind of policy will be a means of ensuring that your heirs will definitely receive a specified amount of money. Read also: High Rated National and Local Life Insurance Policies for Tragedy.
This type of coverage has a special appeal for people who are focused on preserving their assets for their beneficiaries. They purchase a policy to guarantee that their estate will be transferred to them intact, and that the death benefit will be used to pay the applicable taxes, which may also be imposed by your state.
Survivorship Life Insurance
With a survivorship life insurance policy, you won’t be limited to purchasing whole life insurance and a variable universal life policy is another option. If you choose the latter, the premiums can be invested in a separate account, and its value will fluctuate with the stock market’s performance.
This type of policy is the best choice in many situations. For example, a retired couple that does not rely on each other for financial supports my purchase a policy to make it easier to their heirs to pay the estate taxes. It also a way of ensuring that valuable family assets will still be controlled by family members. This is essential, for example, if you do not want to sell a family business to cover expenses, or if the assets are illiquid. Read also: Getting A Term Life Insurance Policy As Your Security Blanket.
Some survivor policies also contain a “spendthrift clause” to keep the beneficiary from spending the inheritance too quickly. It stipulates that the death benefit will be paid in fixed installments. The beneficiary cannot change the terms of the settlement or assign or borrow any of the funds. This can also prevent a beneficiary’s creditors from seizing this benefit to settle debts.