What is Survivorship Life Insurance?

Many people get life insurance to protect their loved ones, such as their spouse or partner, when they pass away. However, they can also use their policy to help with estate planning. For couples, survivorship life insurance offers a cost-effective way to help provide financial security for heirs or help cover estate taxes. Unlike traditional life insurance policies that provide coverage for one person, survivorship life insurance pays out a death benefit only after both insured parties pass away. This article will explain how survivorship life insurance works and explore its benefits and drawbacks to help you see if it’s right for you.

How survivorship life insurance works 

Survivorship life insurance is a joint life insurance policy, meaning it insures two policyholders within a single policy. It does not pay out the death benefit until both policyholders pass away. This arrangement may generally result in lower premiums than comparable policies, and both policyholders may opt to share the cost.¹ 

Survivorship life insurance vs. first-to-die life insurance

Survivorship life insurance and first-to-die life insurance are the two main kinds of joint life insurance. Each insures two policyholders under one policy. Survivorship life insurance only pays out the death benefit when both policyholders have passed away. They are sometimes called second-to-die policies for this reason.

Survivorship life insurance is often used in estate planning, helping heirs gain additional funds when they receive the policyholder’s estate. On the other hand, first-to-die life insurance pays the death benefit after only one of the policyholders passes away. While this policy type can play a role in estate planning, policyholders often use it to help the surviving policyholder cover expenses, pay off debts, and replace income.

Types of survivorship life insurance

Survivorship life insurance policies tend to be permanent policies, offering lifelong coverage to avoid the policy expiring before both policyholders pass away. They also provide cash value, which grows with each payment and earns interest at different rates depending on the policy type. Policy owners can borrow or withdraw from their cash value as it grows and receive the funds minus surrender charges if they surrender their policy. Here are some types of survivorship life insurance:

Whole life insurance

Survivorship whole life insurance offers lifelong coverage with fixed premiums and death benefits. The cash value grows at a fixed interest rate, offering a slow but safe way to grow the value of your policy.

Universal life insurance

Survivorship universal life insurance works like whole life insurance, except premiums and death benefits are flexible. You can increase or decrease them as needed. Cash value grows at a fixed, predetermined rate, like whole life insurance. You can also use it to pay premiums once it grows enough. This policy can work well if you prefer stability but need more flexibility than whole life insurance.

Indexed universal life insurance

Indexed universal life insurance offers the premium and death benefit flexibility of universal life insurance. However, you can invest the cash value in a market index, offering more potential growth in exchange for an increase in risk. If you want to balance higher growth potential with lower risk, indexed universal life insurance may be right for you.

Variable life insurance

Variable life insurance is the most complex survivorship life insurance policy since you can use the cash value for individual assets, such as stocks, bonds, and ETFs. Variable life insurance may work best for those who feel confident actively managing their own investments.