Survivorship life insurance policies, also known as second-to-die life, insure two lives, with the insurance proceeds paid after the death of the second insured. This insurance is often used to provide financial liquidity to pay estate taxes after the death of the second spouse. But with the repeal of the estate tax slated for 2010, Is this insurance still needed?
Until 2010, the estate tax still exists. So unless you're positive you and your spouse won't die before then, you may still have a need for this type of insurance. After that, the estate tax will be eliminated in the year 2010, only to be reinstated in 2011 based on 2001 tax laws. Further legislation is required for permanent estate tax repeal, definitely not a certainty at this time. Thus, if you currently own second-to-die life insurance, you probably wouldn't want to cancel it until these issues are resolved. Whether you need to obtain a new second-to-die insurance policy is a more difficult decision.
Besides using these policies as a means to fund estate taxes, you may find them to be appropriate in other circumstances, including:
- Business owners wishing to leave the business to one child can use the policy proceeds to provide for children not involved in the business.
- The proceeds can be paid to a favorite charity, so the charity receives a substantial contribution without depriving heirs of estate assets.
- If both parents work, a second-to-die life insurance policy can ensure minor children are adequately provided for in the event both parents die.
The premium for a second-to-die life insurance policy is typically less than comparable coverage on either individual life, since only one benefit will be paid. Coverage can usually be obtained for an uninsurable person as long as the other person is insurable. If the policy is properly structured, the proceeds can avoid both income and estate taxes.
Although not suitable for everyone, survivorship life can be an attractive planning tool to meet specific needs.