What Is Last Survivor Life Insurance?

Apr 3, 2023 4 min read

Finding the right coverage for you and your family doesn’t have to be overwhelming. There are various types of life insurance policies that will do the same thing – make sure your loved ones are taken care of after you die. But if you’re looking for a policy that will cover you and your spouse, a last survivor life insurance policy may be what you’ve been looking for. A survivorship life insurance will generally cover two people. Planning ahead to make sure your estate is taken care of by the people you care for is how this type of joint life insurance coverage can help – making sure your beneficiaries have the tools necessary to take over your estate. 

First-to-Die vs. Second-to-Die Life Insurance Policies

Now, let’s discuss the differences between a first-to-die and a second-to-die or last survivor life insurance policy. 

First-to-Die Policy

A first-to-die policy is a type of joint life policy that will generally cover two individuals under the same policy but will pay out the death benefit to the surviving spouse or other beneficiaries when either of the insureds die. Once the policyholder dies, the death benefit will be paid out to the beneficiary they select, which may usually be their spouse.  This type of insurance will usually be a whole life, universal life or term life type of policy. 

Second-to-Die Policy

A second-to-die life insurance policy, also known as a survivorship or last survivor policy, will cover two individuals and will pay out the death benefit to the beneficiary they select after the second person dies. This will usually be a policy selected by a couple that doesn’t need the cash after the death of the first person but plan on leaving an inheritance for the beneficiaries that inherit the estate or wealth after the two individuals on the policy die. A beneficiary with this type of policy can be anyone the couple chooses them to be – usually the beneficiary is a spouse or a child with an individual policy.

How Are Survivorship Life Insurance Policies Helpful?

Let’s say you and your spouse own a family business. You two are well off and won’t need a death benefit if one of you were to die. But you both want the business to be passed onto your children and know your children will need cash to cover the taxes after you both pass – this is when it’s helpful to have a survivorship life policy. 

Estate Planning

Planning for the future of your estate can be a difficult process. Making sure your estate continues to be taken care of for years to come like covering estate taxes is one way that a last survivor policy may help. Usually, for a beneficiary, finding the money to cover estate taxes quickly can become a burden, unless the person leaving the estate has the right plan in place like a last survivor policy to cover the expenses. Funding a trust is another way that can help your beneficiaries that are children or children with special needs. In some cases, a special needs trust can be established to take care of children that will need extra care. 

Business Succession Planning

When starting a business, think about the future and who will become responsible if you or your business partners decide to leave the business or one of you passes away. Creating a small business succession plan for your business is important, and a second-to-die life insurance policy can help protect your business’s future. 

Cost-Effective Coverage

Finding the most affordable coverage that protects you and your family is crucial. A last survivor insurance policy covers two people with an affordable premium. In most cases, premiums for a last survivor policy covering two people are usually cheaper than having two individual life policies. 

Qualifying for Life Insurance

If you’ve ever thought that getting life insurance is hard, it isn’t. However, there may be a few factors that can disqualify you from life insurance and it’s helpful to know where you stand when you’re looking for a policy that fits your needs. Certain things like job occupations, health issues, and hazardous hobbies can make it more difficult to find life insurance, but not impossible. A second-to-die policy may help in getting coverage if you or your spouse can’t access it due to health issues. However, both insureds have to pass away to get the benefits paid out. 

Charitable Giving

If you don’t have any beneficiaries, or if you have a favorite cause that you donate to, you may be considering leaving your wealth to a charity. Charitable giving can give you a tax break as well, depending on a few factors, which may allow for a larger sum to go to the charity. 

Disadvantages of Survivorship Life Insurance

One disadvantage of a last survivor policy is that it will only pay out after both insureds die. Meaning if your spouse or beneficiary needs the death benefit after the first insured dies this is not the best option, and an individual policy may work best. This type of policy is a better option for families that have larger estates such as a farm or a business. People with smaller estates may not benefit from a policy like this one. 

One Death Benefit

With a last survivor policy there is only one death benefit paid out versus one per individual because it is paid out after the second insured’s death. Again, this type of policy is best suited for two people that plan on leaving their estate to beneficiaries and won’t need the death benefit if one of them dies. 

Beneficiary Considerations

Beneficiary requirements vary depending on the type of policy that you are interested in. In general, it’s important to list a primary beneficiary and a secondary beneficiary just in case something happens to your first option. When listing your beneficiaries, make sure to be as specific as you can be with the names so there is no confusion. The age of your beneficiaries can also be something to consider, so make sure you list someone who is of legal age that you trust to help manage the minor’s assets. Speak to your agent to discuss the requirements that can be associated with the policy. 

Divorce and Life Changes

Divorce and life changes are not usually planned and therefore can be hard to prepare for – especially when you have life insurance policies in place. With an individual life insurance policy, your ex-partner may be entitled to the cash value with a permanent life insurance policy if they own the policy but will not receive anything if it’s a term life insurance policy. 

With a survivorship policy, there is generally more flexibility. A survivorship policy will offer additional riders, such as a Policy Split Option rider, that can help split the policy if you were to ever get a divorce. Talk to your agent to discuss how this rider can be added to your policy if it isn’t already when getting coverage.  

Ready to plan the future of your estate? Speak to your local Farm Bureau agent to discuss if a last survivor policy is right for you! 

Neither the Company nor its agents or advisors give tax, accounting or legal advice. Consult your professional advisor in these areas.

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