Second to Die Life Insurance policy is a life insurance policy that insures two people at the same time. The benefits are paid only after the second person dies. It is also referred to as last-do-die insurance, joint and last survivor insurance and survivorship life insurance. You would generally not need a second to die life insurance. But there can be situations when it can be beneficial. It is designed for protection of larger estates, generally over two million dollars. It is designed to pay estate taxes and can be used as an estate planning tool. The death benefit is payable upon the second death when estate tax and estate settlement costs may cause an excessive financial burden.
You can use this type of second to die life insurance to protect family estates such as real estate, property, family farms and other hard assets from liquidation. This type of insurance provides benefits to the heirs only after the last surviving spouse dies. This differs from regular life insurance in that the surviving partner doesn’t receive any benefits after the other dies. Generally parents take out this type of insurance thinking of their children, not themselves.
The benefits of a second to die life insurance are:
1. Estate Planning: You can use it as a powerful estate planning tool if expect to leave a significant estate to your heirs and the size of the estate will necessitate payment of a significant sum of estate taxes.
2. Funding for Care of Special Needs Children: If you have children with special needs, you can ensure that will be available even after your deaths by planning ahead with this type of insurance.
3. Charitable Giving: If you want to leave a significant sum of money to charity, you can buy this policy and name your favorite charity as the beneficiary.
4. Simplicity: Using one agreement, you can establish an irrevocable life insurance trust to purchase the insurance policy, with your heirs as beneficiaries. This will keep the insurance proceeds out of your estate for tax purposes. By means of a will, estate assets then pass to the surviving spouse at the first death. At the second death, the insurance death benefit is paid, with the policy proceeds passing directly to the named beneficiaries who can then use the money to replace assets lost to taxes.
5. Price: Compared to premiums you would be paying for two separate single life insurance policies, the premiums for a second to die life insurance policy is generally lower.
6. No second guessing: You do not have to make plans based on who will die first. It is relevant for the payment of benefits under a second to die life insurance policy.
7. Underwriting is generally more liberal than that for a single life policy: Since two lives are insured and the benefit is paid at the death of the second, you can get a second to die life insurance even if one of the partners have been denied life insurance coverage by a single life insurance product.
