Estate planning is essential when you leave a legacy of largesse for your beloved ones. You have to ensure that it is easy for the heirs to preserve the estate which otherwise would lose its value and meaning. Therefore, protecting the inheritors from the burden of estate taxes should be your responsibility. Survivorship insurance provides the perfect solution for creating an inheritance plan with the proper support of funds for paying the estate taxes. Survivorship insurance or second to die whole life insurance policies do not part away with the death benefit immediately on the death of any one of the persons. Instead, the benefit passes on to the beneficiaries only when the second insured to die meets with death.
The features of the policy
Second to die insurance may appear like any other life insurance policy but it is unique because it covers two lives, usually husband and wife, instead of one. The plan is particularly attractive for couples because the federal tax laws allow deferment of payment of estate taxes and other estate costs that stretches even beyond the lives of the couple. You can leave an unlimited amount of assets in the name of your surviving spouse to avail marital deduction according to the federal laws. If you leave your assets in the name of your surviving spouse on your death, no tax is payable for the assets.
Eventually, there comes a time when both persons covered by the policy pass away and the insurance company pays the death benefit that helps to meet the financial commitments of estate taxes and other related expenses. The heirs can maintain the estate without any difficulties.
Reducing tax burden
Having a second to die policy is a great way to assure the heirs that they need not worry about paying estate taxes thereby making it easy to retain the estate. Since the proceeds from the death benefit would help to pay expenses related to the property, there would be no reasons to liquidate the estate unreasonably. You ensure that the heirs continue to use the legacy that you leave behind. Moreover, at the time of buying the policy, you pay less than what the estate tax would cost. The plan is suited for wealthy individuals who can use the second to die policy as a tax-reducing tool by creating a suitable financial plan. Let us now look at some other benefits.
Buying is easy
Often the health of the policyholder can make things difficult when buying an insurance policy but not if you are buying second to die policy. Since the insurance company pays the death benefit only on the death of both persons covered by the plan, even if one person is in poor health, the insurance company does not consider the risk at the time of issuing the policy. Therefore buying a second to die insurance policy is easier.
It costs less
You pay less for buying a survivorship insurance policy when comparing the death benefit that you receive against it as against traditional insurance policies. Since the risk is based on joint life expectancy, which is apparently less than covering a single person, the policy costs less. Another reason is that the insurance company owes nothing until the second to die meets with death. The cost of this type of policy would be much less than taking separate plans for individuals.
Helps in estate building
Besides insulating estates from taxes, another attraction of survivorship policies is that it helps in estate building too. After all, the policy is nothing much different from other insurance policies in the aspect of creating a corpus of funds to be available on the death of both the policyholders. It ensures that the beneficiaries receive a minimum sum of money even though you might not leave any of your other savings for them.
A step in estate preservation
Often you might worry about what would happen to the estate that you leave behind for the heirs who might face the burden of meeting the expenses for maintaining it. From estate taxes to estate-related other expenditures, it could require a significant sum of money to preserve the estate. The second to die policy is a great tool to ensure that funds are available for meeting the property-related expenses so that the heirs find it easy to continue with it.
Get market exposure for better returns
Although the survivorship policies guarantee the return, you might be interested in increasing it as much as possible. Buying a survivorship policy available in the form of universal life policy allows you to invest the premiums in the market that could boost the returns further.
Parents with a child with special needs would find the policy useful for leaving funds for his / her survival when both parents pass away.