Survivorship Life Insurance
Life Insurance insures two people and pays benefits only after
the second person dies.
is generally designed to provide funds to pay estate taxes.
Also called second-to-die life insurance, "joint and
last survivor" and "last-do-die" insurance.
The proceeds of the policy become available at the second
death when estate tax and estate settlement costs may cause
an excessive financial burden.
estate taxes are based upon the total current value of all
assets (liquid or not), Survivorship Life Insurance can protect
family estates such as real estate, property, family farms
and other hard assets from liquidation. Survivorship
Life Insurance is designed to protect larger estates, generally
$5 Million or greater.
Insurance policy premiums are based upon the risk involved
in the insurer having a monetary loss as a result of paying
out claims. This risk is based upon statistics. For example,
a person with known medical problems (such as high blood pressure)
is statistically more likely to suffer death earlier than
a healthy person without such a condition. Therefore the insurance
companies cost to provide life insurance coverage for the
medically impaired person is higher.
main benefits come from that
Because there is less of a risk involved for the insurer when
the death benefit is paid after the death of two people, the
cost of the policy (the premium) is less.
There is less financial risk for the insurer, so those with
medical or other impairments that would normally be rated
(or possibly declined) can get approved (depending upon the
health of the other applicant).
the risk is spread over two lives resulting in lower policy
costs and the Survivorship life insurance can be less costly
and easier to qualify for than other types of life insurance.
Planning and Survivorship Life Insurance
policies are typically designed to offset the monetary costs
of estate taxes. Estate taxes can reach levels as high as
55 percent. A bill was enacted in the early 1980's that allowed
the postponement of estate taxes until the death of the second
spouse so Survivorship life insurance policies are used to
offset the financial burden of estate taxes after the death
of the final spouse.
safe last to die policy should be owned by a third party (typically
ultimate goal of estate planning is to acquire and preserve
someone's assets past death. Several major decisions must
Who are the beneficiaries?
How can you reduce or eliminate administration costs?
How can taxes be reduced or eliminated?
are two major common ways to start the estate planning process.
Either the creation of a will or the creation of a trust.
Both are designed to determine who is the beneficiary of specific
assets. But the similarities end there. For more information
of trusts or wills, contact a lawyer or certified accountant.
Imposed on the Transfer of Assets
this writing there are three taxes imposed on the assets of
the deceased: estate tax, gift tax, and generation skipping
tax is a tax that is imposed during the lifetime of the giver.
Unlimited gifts may be given to a spouse or to charity without
tax. And gifts of less than $10,000 per year may be given
without taxation. The tax rate on gift taxes ranges from 37%
to 60%. But an applicable exclusion is satisfied before taxes
are required. The applicable exclusion is a specific amount
of money depending upon the year. Currently in the year 2000,
the excludable amount is approximately $675,000. This amount
will rise each year until it reaches $1 million in 2006.
tax is one that is imposed upon death, but in the event of
a married couple it is not imposed until the death of both
parties. The estate taxes are based upon the total current
value of all assets (liquid or not) after all appropriate
expenses and appropriate asset transfers.
Generation-Skipping Transfer Tax is imposed both at death
and during the lifetime of an individual. This tax is at 55%.
A decedent (the person transferring assets) has a lifetime
excludable gift amount of $1,010,000. This tax and exclusion
is applied to gifts that are for grandchildren or relatives
further down the family tree (i.e.. great grandchildren).
Transferring assets to the skip generation that are greater
than the allocated amount may also be subjected to an estate
tax if the gift is at death.
Life Insurance policies essentially add special beneficiary
provisions to the normal types of non-term Life Insurance
policies : whole life, variable life, and universal life.
common link between these three policy types are that they
develop a cash value. Policies that develop a cash value are
commonly referred to as permanent insurance. permanent policies
provide a death benefit as well as an investment component.
The investment can be borrowed from or even withdrawn to fund
retirement. A number survivorship life insurance plans allow
up to a 10 percent withdrawal annually without the policy
life insurance by definition has a fixed premium (premium
never changes) and an accumulating cash value. The cash
value is designed to increase to age 100 when it will
then equal the death benefit. The cash value is able to
be borrowed against and is received even if the policy
is cancelled due to non-payment. Whole life policies do
not have to be renewed or converted. There are several
variations of whole life: limited pay, modified premium,
and graded premium. The only major differences are in
the way the premium is paid.
Life is an interest-sensitive form of insurance. The goal
behind variable life insurance is to create a product
that combines the protection of life insurance with the
growth potential of common stocks. This type of policy
is similar to whole life in that it has fixed premiums.
Variable life policies have a minimum guaranteed death
benefit, however the actual death benefit will vary based
on the market conditions of the investment chosen. Typical
variable life investment mediums are stock funds, bond
funds, real estate funds, or any combination of these.
There is no guarantee to the cash value of the policy
because it is based on market growth. As with whole life
plans, there are usually provisions that allow the cash
value to be borrowed against.
life insurance is the most flexible type available. It's
purpose is to be a combination of term insurance protection
with the accumulating cash value of whole life. These
plans normally increase in value faster than whole life
because it's interest rates tend to follow the markets
instead. Premiums can be paid in a lump sum, annually,
or anywhere in between. There is usually a guaranteed
minimum interest rate. The administrative costs of the
policy are deducted from the cash value of the policy
on a monthly basis. As long as the cash value is substantial
enough to keep the policy in force, the policy will not
lapse. The death benefit reduces in proportion to the
increase in cash value, which creates a level death benefit.
After your life insurance needs are determined and you've
chosen the type of permanent insurance for your policy, sitting
down with your CPA and/or insurance professional will help
to complete the process.
first step to choosing the right policy is to determine if
the policy being considered is offered from a company in good
financial standing and that they have the ability to pay their
claims. Since Survivorship Life Insurance is a long term instrument,
finding a highly rated company with the financial ability
to pay claims is essential.
are several independent companies that rate companies on these
factors. We recommend only considering products from companies
with the top three ratings from these companies. Here are
links to these financial rating companies:
Duff & Phelps
Standard & Poors
determining if the proposed policies are financially secure,
it would be wise to reassess your needs. A policy should be
designed around the needs of you, your family, and your estate.
If the goal of the life insurance policy is for estate preservation,
consider consulting with a CPA or lawyer to ensure the policy
will accomplish it's goals.