Insurance policies are usually designed to help the surviving spouse get the benefit of the policy, but there are some other types of insurance policies that can help in estate planning, charitable planning, and even business succession planning. What kind of insurance policy you should buy depends on what kind of financial support you want to extend to the survivors based on your economic status and the kind of circumstances that you face. If you belong to a high net worth family and know that the heirs have to bear the burden of estate taxes then most likely you would like to make provisions so that they do not face any difficulties in paying it. In such cases, second to die policies or survivorship policies would be most suitable.
The second to die insurance policy covers two lives, usually husband and wife, for a fixed sum for the entire life of both individuals and the benefit is payable to the beneficiaries mentioned in the policy only when both the individuals pass away. Since the benefit reaches the heirs who receive a decent sum of money, they can use it for paying estate taxes to preserve the family estate. As per current laws, you need not pay estate taxes for family estates up to $5 million but exceeding it would attract tax @40%. If you are a candidate for survivorship policy, know how it would be beneficial for you.
Survivorship policies cost less
If you are looking for cheap insurance policies that match with your financial goals, then survivorship policies are cheap. When you take a second to die insurance policy, it costs much less than what you would have to pay for covering two lives under any other policy. The insurance policy pays out only when both lives pass away which considerably lowers the statistical risk of the insurance company that charges you less. The policy does not support the spouse when any one of the covered lives pass away, but it helps to leave a legacy for your children that they inherit along with the estate you leave behind. You can pay one time to buy the policy or keep paying an annual premium depending on your affordability.
Covering an uninsurable person is easy
You can qualify easily for a second to die insurance policy because even if one of the proposers is in poor health, the insurance company sets its eyes on the healthier person to calculate the risk. This is possible because the insurance company will pay the death benefit only when both persons covered by the policy died. Since the healthier person is likely to live longer, the spouse who might be in poor health receives the benefit of the doubt. The policy thus allows older people to take cover because for risk evaluation the insurance company considers the younger spouse who is more likely to live longer unless there are some health problems.
Secure your estate
Estate taxes can be quite high, and it can even erode the stability of the estate that you can protect well with survivorship insurance policy. If you have a business interest, investments and property to leave behind for your inheritors, it would attract high estate taxes. In the interest of securing the estate, you can take a second to die policy that provides the funds required to maintain the estate intact by paying taxes.
Any high net worth family buys survivorship insurance through an Irrevocable Life Insurance Trust that owns the policy. The heirs only enjoy the rights applicable to the members of a family trust. On receiving the death benefit, the trust controls it so that it remains outside the purview of inheritance and not considered a part of the estate.
Securing a legacy for children
You can use survivorship policy in many ways. You can buy a policy of high value, and the children can share the premium payable so that they inherit a large sum of money that helps to secure the estate they inherit. Another way is to pay a single premium to ensure that there is no fear of the policy lapsing as you leave behind a legacy that your children can maintain without any difficulty because they need not worry about paying estate taxes.
Expanding the estate
Some families those are not so much dependent on the benefit obtained from the policy for maintaining the estate can use a significant portion of the death proceeds to buy another survivorship policy. The policy purchased with one-time premium would ensure that their children enjoy a greater inheritance without any worries. Planning for successive policies for the next generation by using the benefits obtained from earlier policies help to expand and increase the family estate.
Providing the loved ones is a concern for any parents and survivorship policies are ideal for it.