Survivorship universal life insurance is an affordable way to get coverage for married couples and help your beneficiaries manage the expenses of estate taxes.
You can consider one part of your overall strategy for estate planning and long-term investment. It offers flexibility and customization so you can have the insurance to fit your needs today and in the future. An lesser used type of life insurance, it has a very specific set of uses.
Defining Universal Life Insurance, First
To define survivorship universal life insurance, we’ll first look at the core principles to put this option into context. Universal life insurance is a kind of permanent life insurance with flexibility as its base component. The flexibility extends to just about every aspect of this insurance which makes it a living product. You can adjust based on your evolving financial situation.
Your control over your policy extends to the premium, death benefit, and cash value portion. Your requirement is to keep the policy current to ensure continual coverage. As you’ll see, this flexibility adds to its value.
It is similar to whole life insurance except you have control over the cost of your premiums, within limits, of course. You can lower your costs to reflect changes in your income. Likewise, you can accelerate the accumulation of its cash value by opting for higher premiums. Like other types of permanent insurance, part of your costs goes toward a tax-deferred cash value.
Death Benefit Choices
Another feature of universal life insurance concerns the death benefit. You can choose to make it a level amount based on your policy’s face value. You can also include the amount plus the cash value it has accrued. You also have flexibility with the amount of coverage you can change as your situation does. However, increases in coverage may have more requirements.
Cash Value Portion
One of the primary advantages of universal life insurance is the ability to borrow or withdraw against it. You can tap into these funds to cover unexpected expenses or planned ones such as your children’s education. It can benefit you as well as your beneficiaries. There may be limits to the number of withdrawals you can make. Any unpaid monies will reduce the death benefit.
So, What Is Survivorship Universal Life Insurance?
With this background, let’s look at survivorship universal life insurance.
The same flexibility applies to this type. You have control over your premiums, death benefits, and your contributions to the policy’s cash value.
The primary difference is two people are covered instead of just one person. One premium covers the cost for two individuals, making it an affordable option.
You may see these policies called second-to-die insurance. This means the insurer doesn’t pay the death benefit until the second person on the policy passes. And that’s one reason why it is cheaper than buying two individual whole life or universal life insurance policies. The cost is based on the life expectancy of both individuals rather than just one.
Why You Should Consider A Survivorship Universal Life Policy
Survivorship universal life insurance makes an excellent choice for married couples. Of course, the cheaper cost stands out as a valid reason for going this route.
It may also be a better option to obtain life insurance in cases where there is a difference in ages between spouses. An older individual can get coverage in cases where it may be difficult or impossible.
There are other situations where you might want to consider this type of insurance. It’s often used in estate planning.
When the second individual passes, your family will receive a death benefit which is generally tax-free. It’ll provide financial security to your beneficiaries to help offset the cost of estate taxes if you haven’t set it up in an irrevocable life insurance trust.
The benefit also applies if you are the parent of a child with special needs. A survivorship universal life insurance policy with a special needs trust can continue to provide for your child when your role as the primary caregiver has ended. It’ll give you the peace of mind knowing you’ve taken care of your child’s future even if you’re not there.
Survivorship universal life insurance is a wise choice for business planning. It can help smooth the transition of the business to family members to take on the reins as well as providing financial security for non-business owners. You might also consider a policy which covers business partners in joint ventures to preserve your business for future generations.
Covering the First Death
You may be questioning the payout as it comes only after the death of the second individual.
.Most likely, expenses will exist in this case too. You can also purchase a term life insurance policy to cover for either one or both individuals. This type of insurance pays only a tax-free death benefit and does not accrue a cash value like your survivorship universal life insurance might.
The advantage of this option is it ensures liquidity to cover any expenses. You or your beneficiaries have a source of ready funds. The second benefit concerns the nature of term life insurance. Without a cash value portion, this insurance is affordable for almost any income bracket. Term life insurance doesn’t cost much to give you and your family the extra added security.
Flexibility also comes into play here as well. With term life insurance, you select the period of coverage up front. Generally, it’s less expensive to purchase this insurance when you’re younger. And your premiums will stay level for the initial policy term.
Most policies will renew, albeit, with adjusted premiums. However, you can maintain this additional coverage often up to age 90.
You can also opt for a whole life insurance policy. While it’s more expensive, you’ll have the same security term life insurance offers along with the benefits of a cash value portion. You can keep your expenses in line by opting for less coverage.
You can choose an amount to cover the likely short-term expenses and the loss of income for your spouse and family.
With either option, protection is in place to cover the expenses of the first death in a survivorship universal life insurance policy. It negates the one disadvantage of policy which only pays on the second death. You needn’t worry about any financial hardship your family may endure. However, the opportunities for further customization of your coverage don’t end there.
As with most life insurance, you’ll likely find you can customize your policy with additional riders. Bear in mind they may increase the cost of your insurance.
Examples may include options such as a disability waiver in the event one of the insured becomes disabled before a certain age. The conditions and restrictions will vary with the insurance company.
You might also consider adding an estate protection rider. It is especially useful when there is no irrevocable life insurance trust in place.
Even if it is, a rider will preserve the death benefit if both individuals pass within the first four years of the policy, a common limitation of this product. It’ll offer extra protection for your family in addition to your careful planning for their future.
Survivorship universal life insurance offers a way to ensure the financial security of your estate or business in an affordable way. When used with term or even whole life insurance, you can ensure your beneficiaries have the necessary funds to manage the loss of your income and handle short-term expenses. It is an excellent way to give your family lifelong protection.