Survivorship Life Insurance Policies
When an ordinary life insurance policy just won't do, you may purchase a survivorship life policy. These unique policies allow you and your spouse to obtain insurance coverage that might have lower costs than if you had purchased ordinary life insurance. Make sure you understand how these policies work before you buy them.
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Identification
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A survivorship life insurance policy is a life insurance contract that insures two lives instead of just one. Because of this, the policy only pays a claim when the last insured individual dies. These policies often take the form of whole life or universal life insurance and build a cash reserve, called a cash value, that you and your spouse may use during your lifetime for any reason.
Benefit
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Because there are two people insured under one policy, the costs may be lower. The policy's cost is determined by the health of both individuals, but since there is only one policy, there is only one policy fee, one premium load, etc. This allows you and your spouse to save money when compared to two individual policies.
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Disadvantage
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The disadvantage of a survivorship policy is that the policy pays when the last person on the policy dies. This may be a disadvantage if the surviving spouse needs the death benefit. In this case, the policy premiums will still be due after the first spouse dies, but there may be less income to pay for the premiums. This is especially true if the couple's main source of income was from a pension and the pension benefits are either gone or reduced for the surviving spouse.
Consideration
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If you think you'll need additional income after your spouse dies, consider a first to die policy. These policies may also be less expensive than two individual policies. However, the policy pays when the first individual dies. This enables the surviving spouse to pay for any expenses related to the death of the spouse or may make up the difference of a reduced pension.
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