Survivor life insurance is a type of insurance that insures two people's lives, usually a husband and wife. This joint insurance provides death benefit protection for both individuals through one policy. However, some key differences exist between this type of policy and ordinary life insurance.
With a survivor life insurance policy, the life insurance company pays a death benefit when the second individual on the policy dies. This differs from a first-to-die policy, which pays a benefit when the first individual named on the policy dies. Likewise, ordinary life insurance pays when the insured individual dies.
Survivor life insurance is designed for estate planning. It's also called "second-to-die" life insurance. Survivor life insurance ensures that the assets of the two people named in the policy are passed directly to beneficiaries and not left to the estate.
The benefit of a survivor life insurance policy is that the policyholders pay lower premiums on the survivor policy than if each person on the survivor policy purchased his own policy. The effect is that the cost of supporting the policy is lower, and less money needs to be diverted toward a death benefit that is just going to be spent on taxes anyway. This means that the policyholder gets to keep more of his personal savings and income due to the lower premiums on the survivor policy.
The disadvantage to a survivor life insurance policy is that the death benefit is not payable until the second spouse dies. This means that if one spouse depends on the other for income, the dependent spouse needs a separate plan for income if that spouse outlives the supporting spouse.
Consider whether you have an estate that justifies the use of survivor life insurance. As of 2011, any estate valued at more than $1 million will be subject to the federal estate tax up to 55 percent on any amount in excess of $1 million. If your estate is less than this, you won't need to worry about paying estate taxes and may not find a survivor life policy worthwhile.