Heidi works with top-rated life insurance carriers to bring her clients the highest quality protection at the most competitive prices. She is a wife, mom, and former school teacher, specializing in helping families. As parents, it's our responsibility to ensure our family is financially sound, regardless of what life brings. Her goal is to make the process of obtaining life insurance as simp...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Oct 17, 2020

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Salt and Pepper. Pen and Paper. Milk and Honey. Love and Marriage.

Some things are better together. The same can be said for purchasing life insurance, sometimes.

Survivorship life insurance, also known as second-to-die life insurance, covers two people and is often purchased by spouses.

It makes sense in some situations. Let’s dive in and take a look.

What Is Survivorship Life Insurance?

A survivorship life insurance policy is designed to insure two lives under one policy with one premium payment.

Introduced in the 1980s, this type of coverage came onto the market when new tax laws were passed to help married people avoid financial hardship after the death of a spouse.

It’s a type of life insurance (almost always) called permanent life insurance that:

  • Typically involves spouses
  • Benefits are only paid after the second person dies
  • Is an affordable alternative to separate policies
  • Usually is a universal or whole life product
  • Best for those interested in estate optimization, the well-being of children, business planning, education or charitable giving

Quick Guide:

survivorship life insurance

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When Does Survivorship Life Insurance Make Sense?

There are five primary situations when survivorship life insurance is a good option:

1. Funds For Estate Taxes

Survivorship policies are often used as a strategy to hedge against estate fees and taxes.

The life insurance proceeds are typically passed to the beneficiaries income-tax-free, and provide a means to cover costs associated with a large estate.

Federal estate taxes, under current tax law, are usually not due until the second spouse dies, making survivorship policies a popular option.

When it makes sense: If you have a sizable estate that is taxable (see the IRS Estate Tax), survivorship life insurance can pay for your taxes and keep the estate size intact.

2. Special Needs Child

It’s common for parents to establish a survivorship policy if they are concerned for the well-being of their child, most often a special-needs child.

The financial cost of caring for a child with a developmental disorder is staggering.

According to the U.S. Department of Agriculture, it will take roughly $240,000 to raise a child from birth to age 18. For a special needs child, those expenses can quadruple. – Craig Guillot, The Cost Of Raising A Special Needs Child, Mint.com

Further, the financial requirements for many special-needs children do not stop at age 18. Many will be unable to live independently. Parents need to financially plan for the longterm future for their child.

A quarter of U.S. households have a member with special needs. More than 8% of kids under 15 have a disability, and half of those are deemed severe. – Jeff Howe, Paying For My Special-Needs Child, Time

When it makes sense: Survivorship life insurance policies are an excellent option for parents to financially plan for their special-needs child, even after both parents have passed away.

3. Buy Sell Agreement

Business transition plans are crucial for spousal partnerships.

If you and your spouse each own a portion of a family-run business, survivorship life insurance provides a tax strategy and funds for the business to continue.

A properly established buy-sell agreement through survivorship life insurance can:

  • Provide a safeguard to maintain the integrity of the business
  • Secure a business succession plan

When it makes sense: If you and your spouse run a business, a buy-sell agreement through survivorship life insurance is an intelligent option.

4. Charitable Organization

Often, life insurance proceeds provide the perfect opportunity to gift funds to your favorite charity.

Reasons survivorship life insurance works well for charitable giving:

  • Seamless and straightforward, especially if you name the charity as a beneficiary (sometimes it makes sense for the charity to own the policy, too)
  • Option to pick multiple charities
  • Depending on your estate, a charitable gift can provide an income-tax deduction and benefit estate planning

When it makes sense: Charitable giving through life insurance is a popular method of gifting money to your favorite organization(s). Depending on your estate, it can also provide tax advantages.

5. Educational Trust

Permanent survivorship policies build cash value, which is often accessed to fund education.

Further, life insurance is not considered in financial aid calculations, a benefit if student loans and aid are being examined.

When it makes sense: Some families use survivorship policies as a vehicle to help fund their child’s education. If set up properly, a survivorship policy can be an excellent, tax-advantaged resource for funding private school or college.

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Benefits Of Survivorship Life Insurance

In addition to the five situations where survivorship life insurance often makes sense, there are a number of potential benefits.

Liberal Underwriting

Especially if you or your partner are not in good health, the underwriting process for this type of policy is advantageous.

Underwriting – the process of risk assessment – is conducted simultaneously.

So, even if one person is in poor health (e.g. history of heart disease), they can still likely be approved for coverage via their partner’s assigned health class.

In other words, someone who would be deemed uninsurable for traditional life insurance can secure coverage under a survivorship policy.

Sometimes, survivorship life insurance is purchased with a parent, instead of a spouse. If the second person is a senior citizen with a number of health conditions, the liberal underwriting can be a tremendous help.

Affordable Premiums

Your premium payments are likely more affordable than two separate individual policies.

Why? Life insurance companies use a specific pricing formula, and because the policy doesn’t pay until the second person dies, premiums cost less.

Keep in mind, the surviving spouse will need to continue to make premium payments after the first spouse dies.

Inheritance Equalization

When a couple has multiple beneficiaries, such as their children, equalizing inheritance is often precarious.

As a potential solution, some survivorship policies are set up through trusts, like an irrevocable life insurance trust (ILIT), to equally distribute an estate to multiple dependents (this is common amongst agricultural families and small business owners).

Consider an example.

You own a family-run business. One of your children is involved in the day-to-day operations and plans to be the successor of the business. Your other child chose a different career.

To balance your estate, one child inherits your business, while your other child receives a death benefit from a survivorship policy worth the same amount as the business.

Wealth Creation

Sometimes, couples are torn between preserving their wealth for their loved ones and spending money during their lifetime.

In this case, the dilemma is solved with a survivorship policy. Money is enjoyed during your living years, while a policy is in place to leave a death benefit to your dependents or a favorite charity.

Potential Drawbacks to Survivorship Life Insurance

Depending on your circumstances, survivorship life insurance may not be the best option.

No Death Benefit For Surviving Spouse

Also called second-to-die life insurance, the death benefit does not pay until the second person dies.

If the surviving spouse will need funds, this form of coverage will not be helpful.

Instead, if income replacement is required, you can buy cheap term life insurance for each individual – if you both qualify.

Divorce

A divorce does not automatically make a survivorship policy null.

Even if spouses are separated, divorced, or even remarried, the coverage – and its required premium payments – remains intact unless an appropriate rider was purchased.

Premium Payments

Even after the first person dies, in most cases, premium payments are still due.

Confirm that budget will not change drastically following the death of your spouse – so that you can continue to pay for your coverage.

Note – in some cases, the premium payment structure can be set up via a limited or single pay modal, and payment is not required after a certain point.

Cash Value Is Not A Focus

While almost all survivorship life insurance comes in the form of permanent coverage, and cash-value does exist, it tends to not be the focus.

Said differently, this type of coverage does not accumulate cash as quickly as other types of life insurance, such as a whole life insurance policy.

Instead, the death benefit and asset preservation are highlighted.

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Things To Consider

If any of these questions apply to you, survivorship life insurance is definitely worth looking into:

  1. Do you need funds to pay estate taxes in order to maintain the size and integrity of your estate?
  2. Is there a special-needs child in your life that will need long-term financial care?
  3. Do you run a small business with your spouse?
  4. Is there a charity that you would like to gift money to?
  5. Do you need to plan for college tuition or private education?

Bottom Line

Survivorship life insurance can make all the sense in the world depending on your needs.

There are different types of survivorship policies, each with their own features and benefits.

Really, you need to collaborate with an expert independent life insurance agent who can find the best fit for you.

It pays to shop around to see which insurer offers the best price for specific circumstances. And instead of working with a broker exclusively affiliated with a single insurer, work with an independent agent who has access to the top term insurance providers. –