In this post, I want to show you all you should know about survivorship life policy, and how to go about it. After reading this post, you will understand how survivorship life policies work, and if you are asking”how many people does a survivorship life insurance policy cover, ” then I will answer it too.
So Let’s Dive In
What Is Survivorship Life Policy?
This is another type of joint life insurance policy that is designed to cover two people, especially spouses. In my last post, I talked about first to die insurance policy, which is another joint-life Policy that couples can buy. If you haven’t read that, then here it is.
The survivorship life policy pays only one death benefit, and that’s after the death of the two policyholders. Because of this system of benefit payment, many couples did not find it useful to them. However, there are many other couples who prefer a survivorship insurance policy over any other one.
When two partners have separate incomes, it is more reasonable that they have their individual policies and all their spouse as the beneficiary. Meanwhile, in some situations, a single survivorship insurance policy is preferable and more helpful than others
This type of policy is also known as variable survivorship insurance, second to die insurance policy, or joint survivor life insurance and it is most chosen when the aim of the insurance company is just to provide money for the insured couple’s heirs. That’s why the payout is after the death of both partners.
How Does Survivorship Life Policy Work?
There are two different types of joint life insurance, they are first to die insurance policy and survivorship insurance policy.
In first to die insurance policy, the benefits payout is after the death of one policyholder. The second one is the second to die or survivorship and the payout is once, which is when the two policyholders die. For some reason, the survivorship life policy can never be used as an income replacement for the living partner, but it goes to another person being chosen as the beneficiary.
It is also important that you note that the beneficiary of this insurance policy, may not necessarily be the policyholder’s children or relatives. A survivorship insurance policy works pretty well when you plan to transfer some assets to a friend, non-relative, or business partner.
The policyholders may not even plan to give the benefits to an individual, instead, they give it to the orphanage or use it to leave a legacy to a church, charity organizations, or even as a fund to the family.
Here Is A Few Takeaway About Survivorship Life Policy.
- A survivorship life policy is a type of permanent life policy that provides a cash value together with death benefits after the death of the assured.
- It is useful for couples who wish to leave funds for their family.
- This type of policy is more affordable for couples than individual life policies.
- This is also an alternative for couples when one of them couldn’t qualify for life insurance.
Survivorship vs Joint Life:-
Typically, a Survivorship policy is a type of joint life insurance. A joint life policy is a policy that covers more than one person in form of joint whole life or universal life insurance. Normally, the payout for joint life policies is paid only in either of these ways.
- Survivorship:- This is also called second to die. The payout for the joint-life policy is when both of the insured die. The death benefits only go to the insured’s heirs, charity, or permanent departments.
- First to die:- First to die is usually the most common type of policies couples. The death benefits payout goes to the surviving policyholder ( or some other beneficiary). If one of the insured dies. The death benefit is meant to replace whatever income is lost from the policyholder’s demise.
Policies, Their Costs, And Options.
Frankly speaking, it will cost you much more to get two individual one thousand dollars (1,000) policies than it is to buy even a single survivorship policy for one million dollars 1,000,000). This is because, with two individual permanent policies, your Insurance providers must plan for a two million dollar (2,000,000) death penalty payout.
However, when an insurance provider covers two of you at a time, the death benefit payout is smaller. The expectancy for an individual life is lower than that of is joint life, and that’s because one policyholder dies after the other: That’s also what makes the second to die policy more affordable than the first to die policy.
Meanwhile, just as it is with other life policies, the normal policy costs can be different base on different factors as well as the insurance company. Some insurance companies also provide riders with “optional features” in order to make each policy accessible to the insured base on their needs. Below are a few examples.
- Level Term Rider- This provides coverage to each policyholder until they get to 95 years. The rider must also be applied for individually by the policyholders; and it can also be converted to whole life coverage, especially when it’s done before the set age limits.
- Estate preservation rider- This is normally used in tax planning, especially when extra death benefits are required in the first year of the policy.
- Waiver of the monthly deduction for death and disability- This rider is only applicable to one of the insured and it helps to ensure that the policy remains active through waiver premiums, and also when the couple’s income dropped due to disability or death.
Benefits Of Survivorship Life Policy:-
There are so many reasons why the Survivorship life policy is going for; that’s what I want to show you in this section, so check them out below.
-Considerable Underwriting:- This will be more profitable to you most when you or your partner are not in better condition health. In the Survivorship life policy, the risk management is always done simultaneously, which means even if one of you is in very poor health, the policy will still be approved to accommodate your sick spouse.
That also means that if one of you is termed uninsurable for other types of insurance coverage, Survivorship is open to accommodate him/her. Sometimes, you can purchase Survivorship with a parent and not your spouse, even if the person is not that healthy, the Survivorship policy will be your last resort.
It Has An Affordable Premium:- The premium you’ll pay for the Survivorship policy is much more affordable than that of two separate individual policies. The reason is that life insurance has a formula for pricing its premiums. The price is also low because the death penalties are not paid until the last policyholder dies.
Another thing to remember is that you must have to continue with the premium payments when your partner dies to keep the policy active.
“Inheritance Equalization”- This is normally uncertain when you have multiple beneficiaries for the policy. To save the situation, the survivorship policy is therefore set up through trust, such as an irrevocable life insurance trust ( ILIT), to distribute an estate equally to multiple beneficiaries.
Creation Of Wealth:- Survivorship policy makes it easy for you to have money available for your children after your death and still have enough while alive. Many couples are so depressed and starve themselves just to be sure they save for their children.
With survivorship, your dilemma of how to keep your family happy and buoyant after your death is eliminated.
Drawbacks To Survivorship Life Policy.
Everything that has advantages also has its disadvantages too. In this section, you will see some of the drawbacks of the survivorship life Policy. Check them out.
No Death Benefits Till The End Of The Policy:- One of the drawbacks of the survivorship policy is that the benefits are not paid till the two insured are dead. There is no room for one of the survivors to enjoy the death benefits before his/her death. In the first to die policy one person will have the opportunity to enjoy the fruit of their labor before death.
Instead, if you require income replacement then your next action will be to buy a cheap term life policy for you and your partner.
2) No Focused Cash Values:-
Because all Survivorship life policies come as permanent coverage, therefore there is no cash value for it. That makes it unfriendly, isn’t it?
Unlike other insurance policies like a whole life insurance policy, a Survivorship life Policy won’t give the opportunity to accumulate cash quickly, it is very possible with other types of insurance.
Separation/Divorce Won’t Stop The Coverage:–
in a Survivorship life policy, divorce, separation, or remarriage does not automatically stop the policy. The courier age remains and you must continue with the prepayment. However, if you seriously wish to stop the policy, the appropriate rider must be purchased.
Premium Payment Continues:-
Even when one of the policyholders of the survivorship life policy is dead, the premium continues in most cases.
It is therefore important that you confirm that the budget won’t change after the death of your partner so it won’t affect your continuation with the premium.
Also, understand that the structure for the payment of premium can be set up through a single or limited model and in most cases, the payments may not be required again after some points.
Whether it is a Survivorship life policy or any other type of insurance policies you wish to purchase, it is imperative to research properly to know which is best for you and your family. Remember that the whole essence of all the insurance policies is to make sure that life continues even after the death of the insured.
Therefore, make sure you have the future of your family at heart before making your choice of insurance policies. I wish you the best as you choose today.
Don’t hesitate to ask questions where necessary. I wish you the best.
I am still your friend, Murphyaik.