Survivorship life insurance, or second-to-die insurance, is a policy that covers two individuals, typically a married couple. The death benefit is paid out only after both insured parties have passed away.
Unlike individual life insurance policies, survivorship life insurance is designed to provide financial support for beneficiaries or to cover estate taxes and other liabilities that arise after the death of both policyholders. Because of this, it can be an important part of a comprehensive estate plan.
Advantages of survivorship life insurance for estate planning
Including survivorship life insurance in an estate plan offers several significant advantages. One primary benefit is its ability to provide funds to cover estate taxes. Since the policy pays out after the death of the second insured person, it ensures that there are sufficient funds available to settle estate tax liabilities without the need to liquidate valuable assets. This is particularly useful in cases where the estate includes illiquid assets like real estate or closely held businesses.
Additionally, survivorship life insurance helps preserve the wealth and assets of the estate for future generations. This policy may prevent the forced sale of assets, allowing heirs to inherit them as intended. This can be especially important for families wishing to keep businesses, properties or other significant assets within the family.
The death benefit from a survivorship life insurance policy can make it easier to ensure equal distribution of assets among heirs. For instance, if a significant portion of the estate consists of a family business or property that is intended for one heir, the insurance proceeds can provide an equitable inheritance for other heirs, reducing potential conflicts.
Incorporating the policy into an estate plan
It may be beneficial to place the survivorship life insurance policy within an irrevocable life insurance trust (ILIT). Doing so can help keep the death benefit out of the taxable estate, providing additional tax advantages and protecting the proceeds from creditors. An ILIT can also provide more control over how the insurance proceeds are distributed to beneficiaries.
Because an estate plan is such a personalized and complex matter, it’s best for individuals in Nevada to work with a legal representative who can help them to determine how to set everything up. This is one way they can care for their loved ones after their death.