Married couples have a few extra options to consider when it comes to choosing their life insurance plan. It may be easier to insure both people together than to get separate insurance policies for both of you. One of the most well-known types of joint insurance policies for couples is called survivorship life insurance. When you’re shopping for life insurance, you’ll hear a wide variety of terminology, and it can be difficult to keep track of it all. In this article, we will define what survivorship life insurance is and how you and your partner can benefit from it.
What is survivorship life insurance?
With survivorship life insurance, you get a policy that covers you and your spouse. However, the policy won’t pay out until both of you pass away. While there are different types of policies within this category, many of them are variable life insurance policies, which means they have an investment component attached. In this case, part of your premium will go to your guaranteed death benefit, and the remainder will go towards the cash value, which is invested. Your insurance company gives you a few different insurance options to choose from, depending on your risk tolerance. The cash value of your benefit will then grow based on the performance of your investment. While most of these policies do not allow you to adjust premiums and benefits, there are some that are universal policies, which will provide you with some flexibility to change your premiums and benefits if you would like.
What are the benefits of survivorship life insurance?
There are many benefits to using survivorship life insurance. One of the biggest reasons many couples choose this option over getting their own individual policies is because the total cost is cheaper.
Insurance companies also charge lower premiums for this type of insurance because their risk is relatively low. It will likely be decades before they have to pay out, so factors like health risks feel less pressing. You still may have to undergo a health examination, but the results will have less of an effect on your premiums overall. If you both wanted to take out policies anyway, it’s a good way to save money. You also know that you will be covered for your entire lifetime, unlike a term life insurance policy, which requires renewal. If one member of the couple has a difficult time getting affordable life insurance on their own, opting for survivorship life insurance should make the process easier.
Many people also use these types of life insurance policies specifically to build an estate for their heirs. If your main concern when buying life insurance is your children, this type of policy is likely going to make the most sense for you. The investment component of the survivorship policy can be used to augment any existing wealth that you have saved up. The death benefit can then be used to pay off estate taxes when your assets transfer to your children or other beneficiaries. Even if you aren’t worried about estate taxes, you can still use the survivorship life insurance to pay for an heir’s education, medical care, or housing costs, particularly if they are special needs.
Finally, depending on the type of policy you have, the cash value can be helpful for the surviving family member. For example, if they can’t afford to pay the premiums after your death, they can usually dip into the cash value of the policy to make the payments. In some cases, you can also withdraw the money for other purposes, which can provide some additional financial support.
Are there downsides to survivorship life insurance?
There are some downsides to survivorship life insurance. The first and most obvious one is that there is no benefit paid out when the first member of the couple dies. This means you will need to be prepared and have money saved up to pay for funeral expenses, existing debts, and any other lingering costs. As we mentioned already, in many cases, you may be able to withdraw some of the cash value to help pay for these things. However, some insurance policies have penalties for taking out the cash value of your life insurance, so just be sure to read the fine print on your policy before committing.
If you and your spouse contribute equally to your bills and rely on each other financially, survivorship life insurance may not be the best option for you. You might be better off with either a first to die life insurance policy or individual life insurance policies for both of you. First to die life insurance will pay out when the first member of the couple dies.
Another downside to this type of insurance is that things can get complicated if you get divorced. It’s important if you are considering a joint life insurance policy to think about the long term of your relationship and create a plan for what to do if things change.
