What Is Survivorship Life Insurance?

The best life insurance policy is one tailored to your unique needs. In some cases, that may involve taking advantage of joint coverage that doesn't pay the death benefit until both insured individuals pass away.

Survivorship life insurance, as these policies are known, can be a good approach to passing wealth to a younger generation or addressing other financial objectives. Here's how this type of protection works, so you can determine whether it might work for your situation.

Survivorship Life Insurance Defined

Most life insurance policies protect the life of one individual, "the insured." And they pay a death benefit when that person passes away. Some policies however can insure two people, whether they're married or not. Survivorship life policies provide a specific type of joint coverage that doesn't pay out until both policyholders pass away.

Less common than individual policies — and offered by fewer insurers — are Joint life insurance policies. However, they can be an effective financial solution for individuals with specific challenges, whether it's complex estate planning needs, supporting children with lifelong dependency or succession planning for a business.

Most of the time, people looking to take out a survivorship life insurance policy want coverage that will last their entire life. Therefore, they're more likely to take out whole life or other permanent life insurance. Because these types of insurance have cash value, the owners can also tap into the policy for financial needs during their lifetime.

Types of Joint Life Coverage

Joint life insurance policies come in two main categories: first-to-die policies and survivorship — sometimes called "second-to-die" — policies. Selecting the right type of coverage depends on the unique needs of your family or business.

First-to-Die Life Insurance

With first-to-die life insurance, the surviving spouse or partner receives the policy's death benefit when one of the joint policyholders passes away. That makes these products suitable for situations where one or both of the individuals would require financial support when the other individual dies. The surviving spouse can use the proceeds of the policy to help make final arrangements, pay outstanding bills or replace lost income from their partner.

Survivorship Life Insurance

Survivorship life insurance only pays out after both policyholders pass away. If one of the owners dies while the other individual is still in relatively good health, it could potentially be a long time before the insurer pays the death benefit. Therefore, second-to-die policies may better suit couples who both earn income and wouldn't need financial assistance when one of them passes.

Who Should Consider Survivorship Life Insurance?

Couples who choose survivorship life insurance are typically those who generate enough income for their own needs but may need a way to support their loved ones or their business when they die. These policies can be particularly beneficial for:

• Estate planning. A death benefit allows you to evenly spread your wealth to your children or other beneficiaries. A permanent life insurance policy can also help children in high-net-worth families manage potential estate taxes. The federal estate tax generally isn't triggered until both spouses have passed away. That makes a second-to-die policy a sensible — and more cost-effective — way to provide the liquidity beneficiaries will need to pay these taxes.
• Supporting children with special needs. Even if you and your life partner don't require financial support, a survivorship policy can provide lifelong income to children with disabilities. Often, parents will use the policy to fund a special needs trust for the child's benefit. One advantage of these trusts is that they generally don't affect the beneficiary's eligibility for needs-based programs, such as Medicaid and Supplemental Security Income.
• Obtaining coverage when a partner has health issues. If one of the spouses has a significant medical condition, they may have trouble qualifying for an individual life insurance policy. When that person applies for survivorship life insurance with a healthy individual, however, the insurer takes on less risk. As a result, it may be easier to be approved for coverage if you seek out a joint life insurance policy.
• Business success planning. Couples aren't the only two individuals who can own a survivorship policy. The joint owners can also be business partners. A life insurance policy can provide a quick source of cash that allows for a smoother transfer of ownership when both principals pass away. As a result, the policy can help alleviate confusion over who will take over the business. The premiums on key person insurance, as such coverage is often termed, are typically paid by the company itself.
• Leaving a legacy. You can also use a joint life insurance policy to help support your place of worship or a favorite charity when you pass away. By making the organization a beneficiary of your policy, you can make a positive impact even after you and your spouse are gone.

    Is This Right for Your Family? Get a Life Insurance Quote  

Pros of Survivorship Life Insurance

Helps Solve Certain Estate Planning Issues

Larger estates — those with more than $13,610,000 of assets in 2024 — may be subject to federal inheritance taxes.¹ Depending on where you live, your state may have estate or inheritance taxes with a lower threshold. The death benefit from a second-to-die policy provides a readily available source of funds that helps your beneficiaries pay such taxes, without having to quickly sell off your assets at discounted prices. A life insurance policy also allows you to evenly distribute wealth among multiple beneficiaries, unlike some other asset classes.

Can Be Easier to Qualify for Coverage

The inability to qualify for life insurance coverage can be stressful, but it's a common reality for individuals with serious medical issues. One way around that challenge is to buy a group policy through your employer. If that's not an option, applying for a joint life insurance policy with a partner who's in good health may be your best alternative.

Less Expensive Than Individual Policies

Survivorship life insurance is usually less expensive than buying two individual policies. After all, the company can wait longer to make a payout when you have second-to-die coverage. Usually, the pricing on your policy is based more on the individual who's younger or healthier, since they're more likely to outlive their partner.

Cons of Survivorship Life Insurance

Usually Not Best for Single-Income Families

A survivorship policy can be an appropriate solution for couples who both earn substantial incomes and don't rely on the other person for financial assistance. However, it may not be the best strategy when one of the partners stays home with children or earns a significantly smaller salary. If there's a large income disparity, each of you may want to consider an individual policy that will provide needed income for the dependent partner.

Harder to Manage If You Divorce or Separate

Survivorship life insurance contracts can be hard to split up when the two parties divorce or separate. Therefore, you may want to think about what would happen to your policy if the relationship should end. In some cases, an insured individual can remove a former spouse from the policy, but you should consult an attorney about your legal options.

Permanent Policies Cost More Than Term Coverage

Second-to-die policies are usually bought by couples who need lifelong coverage. That's why these policies usually take the form of whole life, universal life or variable life insurance. However, permanent policies cost several times more than term policies with the same death benefit. If you're primarily buying life insurance to replace income and you're on a tight budget, a term policy that protects you for a certain period of time may be the better choice.

The Bottom Line

Are you interested in exploring if survivorship life insurance may be right for you? Western & Southern is here to help.

   Ready to Decide? Get a Life Insurance Quote  

Sources

1. What's New - Estate and Gift Tax. https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax.
2. Filing estate and gift tax returns. https://www.irs.gov/businesses/small-businesses-self-employed/filing-estate-and-gift-tax-returns.
3. Survivorship Definition & Meaning - Merriam-Webster. https://www.merriam-webster.com/dictionary/survivorship.