What is survivorship life insurance?
Survivorship life insurance is the most popular type of joint life insurance — which insures two people instead of one. Survivorship life insurance only pays the death benefit to the beneficiary after both insured people have died. It’s commonly used as a tool for estate planning, wealth transfer, or providing long-term support for a dependent after both insured people have died.
The majority of joint life insurance policies are permanent life insurance, meaning they don’t expire as long as premiumsare supported with a mix of out-of-pocket dollars and policy cash value.
How does survivorship life insurance work?
When a couple — usually two spouses — apply for life insurance, both people go through the application process together to receive their policy.
But unlike traditional life insurance that covers a single policyholder, a survivorship policy doesn’t pay out after the first person dies. Instead, the remaining policyholder continues to pay the premiums until they pass away. Then, the beneficiaries will receive the policy’s full death benefit once both parties die.
This makes survivorship policies less useful if your goal is to provide your loved ones with financial support after one person’s death. This type of policy is usually bought to protect the financial health of your beneficiaries, whether they are your children, a trust, a charity, or another person or organization named in the policy.
Since survivorship life insurance policies are permanent, some also come with a cash value component in addition to the death benefit, which acts as a tax-deferred savings vehicle. Unlike the death benefit, you can access the cash value of a policy while you’re still alive.
What are the different types of survivorship life insurance?
Common types of survivorship life insurance:
Whole life insurance, one of the most popular types of permanent life insurance. Whole life policies come with fixed premiums, a guaranteed death benefit, and cash value that grows at an interest rate set by the insurer.
Universal life insurance, which offers more flexibility with your cash value, premiums, and death benefit. With universal life policies, you can often use your cash value to pay your premiums. In some types of universal life policies, the cash value growth is tied to a market index, so you take on more investment risk.
Learn more about the differences between whole and indexed universal life insurance (IUL)
What’s the difference between joint life and survivorship life insurance?
Survivorship life insurance is one of two types of joint life insurance.
A first-to-die life insurance policy pays out the death benefit when the first of the two spouses passes away.
A survivorship life insurance policy pays out the death benefit only after both policyholders die. Survivorship policies are also called second-to-die life insurance for this reason.
Pros of survivorship life insurance
There are a few major reasons you might purchase a survivorship life insurance policy:
It can provide care for lifelong dependents. If you and your spouse have a dependent who will always rely on you, such as a child with disabilities, a survivorship life insurance policy ensures that you’re leaving money behind so they can be taken care of for the rest of their life. The policy could be funded into a special needs trust for the dependent to have some income if both parents are no longer around to support them.
It’s useful for estate planning. If you want to leave money or assets behind to heirs or minimize estate taxes, survivorship life insurance is a good option. The policy’s main purpose is to maximize your estate and provide liquidity — but it’s helpful to consult with an estate planning attorney if you’re considering this route.
It’s cheaper than two permanent policies. Purchasing an individual permanent life insurance policy is much more expensive than purchasing other types of life insurance, such as a term life insurance policy. But permanent survivorship life insurance policies can sometimes be less expensive in the long run than buying two separate permanent policies.
It may help if you have a partner with serious health conditions. If a couple wants both partners to have insurance coverage but one of them doesn’t qualify for their own policy due to their health, a joint policy can cover them both under a single policy.
You can use the cash value. Though the death benefit won’t pay out until both policyholders have died, many permanent policies can build up a cash value that can be accessed while one of the spouses is still alive. If the policy builds enough cash value, the surviving spouse can withdraw money while the policy is still active.
→ Learn more about how cash value life insurance works
Cons of survivorship life insurance
Survivorship policies are costly. Since survivorship life insurance is permanent, it’s much more expensive than other types of life insurance.
There’s a delayed death benefit payout. Your beneficiaries won’t receive the money until after both insureds have died, so if they’ll need financial support sooner, you may want to consider a different type of policy.
Survivorship policies are difficult to split up in the event of a divorce. If you foresee your marital status changing, a survivorship policy could complicate divorce proceedings.
If you don’t have specific estate planning needs, you likely don’t need survivorship life insurance. Most couples can opt for individual term life insurance policies in order to provide an affordable financial safety net for their families, in case they die prematurely.
Term life insurance is one of the most popular and affordable types of life insurance, meant to last for a set term during the period of your life where you have the most expenses — such as when you’re raising children, or paying off a mortgage.
Is a survivorship life insurance policy worth it?
A survivorship life insurance policy can be a good option if you plan to use life insurance as an estate planning tool for your loved ones, rather than as a financial safety net. Alternatively, if you or your spouse are in poor health and can’t get an affordable policy on your own, a survivorship life insurance policy can help both of you get some coverage.
A survivorship life insurance policy isn't the best choice for people in generally good health who need life insurance to replace protect their income if they die. In this scenario, most financial professionals would recommend term life insurance instead.
If you’re considering survivorship life insurance but aren’t sure if it’s the best fit for you and your family, you can consult with a financial planner and life insurance agent to review all of your options. If you’re considering survivorship life insurance, a financial planner, estate planning attorney, or licensed life insurance agent can help you compare your options.
Survivorship life insurance FAQs
Who should consider survivorship life insurance?
This type of policy may be a good fit for couples who have estate planning needs, parents of lifelong dependents, high-net-worth households, or couples in which one person has difficulty qualifying for an individual life insurance policy.
Does survivorship life insurance pay after the first death?
No, these policies pay the death benefit only after both insured people have died.
Is survivorship life insurance cheaper than two separate policies?
Survivorship is typically cheaper than two stand alone permanent policies. Individually owned term policies still provide more cost effective transfer of temporary risk. The cost is relative to the goal for coverage and if you feel your current or eventual estate will benefit from permanent life insurance, second to die or survivorship policies are cheaper than two individual permanent contracts.
What happens to survivorship life insurance after divorce?
Options will depend on the terms of the policy and the divorce agreement. These can be difficult policies to split, so couples are advised to review this risk carefully before buying coverage.
