a couple preserving their estate with survivorship life insuranceEvery life insurance policy serves the same fundamental purpose: the provision of financial security for a decedent’s family. Death benefits are often used to cover the costs of a funeral and to ensure that a surviving spouse has the resources needed to live in relative comfort. However, even after a policy pays out, parents may find that they have little to leave their children. Preserving an estate with a survivorship life insurance policy helps avoid this potential conflict of interest.

Unlike other types of life insurance, survivorship policies proactively protect the interests of higher-income families by distributing death benefits only after both beneficiaries have passed away, leaving larger inheritances for heirs

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Preserving an Estate With Survivorship Life Insurance 

A typical life insurance policy only covers one individual. When they pass away, death benefits are then awarded to the person or persons named as the deceased’s beneficiaries. 

In contrast, survivorship life insurance is designed to cover two individuals, usually a married couple. After establishing their policy, they name another beneficiary—an adult child, a revocable living trust, or even a charity. As long as premiums are paid, the survivorship policy remains in effect until both policyholders pass away. Upon their deaths, benefits are disbursed to the named beneficiaries, who may use the proceeds to pay for final expenses or to establish a legacy of their own. 

Including a Life Insurance Policy in an Estate Plan 

Survivorship policies have other advantages. Along with shifting the burden of tax liability away from aging couples, most plans cost significantly less money than more conventional life insurance policies. 

Most policies also: 

  • Provide substantially more coverage than an individual life insurance policy. 
  • Allow policyholders to receive limited cash benefits from the policy while they’re still alive. 
  • Guarantee payment to a disabled, incapacitated, or dependent heir.

Perhaps the greatest benefit of survivorship policies is accorded to couples whose accumulated estate value exceeds the threshold set by the Estate Tax Unified Credit. If a higher-value estate is subject to the federal estate tax, heirs may be forced to liquidate all or part of the estate to meet their tax obligations. 

In most situations, survivorship policies make the most sense for couples with a higher net worth who have concerns about having to divide a large estate among multiple heirs. 

Survivorship life insurance policies make sense for couples who have the means to provide for one another. If an immediate death benefit isn’t necessary to ensure the surviving spouse’s subsistence, a survivorship policy can prevent the premature dissolution of an estate.  

However, these life insurance policies have clear-cut disadvantages including, but not limited to:  

  • Delayed death benefits. Survivorship life insurance policies only pay death benefits after both policyholders have passed away. As such, the surviving partner won’t receive any benefit upon the first policyholder’s death. For cash-strapped couples, this drawback can negate any advantages a survivorship policy might otherwise offer. 
  • Divorce complications. Nobody enters a marriage with plans for it to end, but divorce rates still remain high. However, even after a divorce, a survivorship life insurance policy may remain in effect. Even if an ex-spouse dies, the surviving partner will have to continue paying premiums to ensure that their children receive benefits. 

While these disadvantages are significant, they may pale in comparison to federal estate tax rates, which can range up to 40 percent of the estate’s overall value.  

Questions to Ask Your Sun City Center Estate Planning Attorney

A survivorship life insurance policy could afford near-unparalleled tax incentives. However, every life insurance policy—regardless of its value—provides its greatest advantage when protected by a broader estate plan. 

Before committing to an insurance policy, ask yourself—and your Sun City Center estate planning attorney—the following questions:

  • Is your estate subject to taxation? If so, how will your children pay? 
  • If you own a family business or stock in a private enterprise, how will you bequeath your interest to heirs? 
  • Do your children need your financial support, or would you prefer leaving a gift to a  preferred charity or other not-for-profit organization

Survivorship life insurance could provide an easy answer to some of these questions, but it is—more often than not—one solution among many. This is a terrific topic to discuss with your estate planning advisor.

Contact Our Estate Planning Lawyer in Sun City Center for a Consult

If you still have questions about the benefits of a survivorship life insurance policy or would like to schedule a consultation with our experienced Sun City Center estate planning lawyer, click the button below or give us a call at 813.945.9423 today!

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D. Rep DeLoach III
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Estate Planning and Board Certified Elder Law Attorney