Advantages of Last Survivor Life Insurance

A last survivor life insurance policy is a kind of whole life coverage intended for spouses. The primary purpose of last survivor insurance is estate preservation. When property is bequeathed to a spouse, no federal estate taxes are charged. However, when the surviving spouse dies, the estate then becomes subject to extremely costly federal taxes. In order to avoid burdening heirs with massive estate taxes, some married couples select last survivor life insurance, which provides for the cost of estate taxes in its benefit. Read on for more information about last survivor life insurance coverage and how it can benefit you.

Estate Tax Relief

Last survivor life insurance, also called survivorship life insurance, can provide estate tax relief to the beneficiaries of the policy. Couples commonly choose this policy to insulate their legacy from prohibitively expensive estate taxes. Survivorship life insurance does not pay out benefits until the death of the last surviving policyholder, which allows it to supply heirs with the funds they need to pay for burial and funeral expenses as well estate taxes. When the last insured person dies, the heirs will have to pay taxes on the amount by which the value of the estate exceeds the current exemption amount. These taxes can be taken directly out of the life insurance policy proceeds.

Inheritance Preservation

Because estate taxes are usually due in full within nine months of the last surviving spouse’s death, heirs often have to scramble to come up with the money to foot the bill. Commonly, heirs must take out loans, sell property, and/or liquidate other valuable assets in order to meet the tax burden. With last survivor life insurance, the policyholders’ heirs are spared this expense and trouble. The heirs will not have to cut into their inheritance in order to pay the deceased’s estate taxes.

Other Benefits

Survivorship insurance has several other benefits over individual coverage that we’ve enumerated below.

1. More lenient medical underwriting standards. The medical standards to qualify for last survivor life insurance may be relaxed for one of the policyholders because of the payouts associated with the second death.

2. More affordable premiums. A single survivorship life insurance policy is cheaper than purchasing two separate policies for individual coverage.

3. Reduced income tax burden. Survivorship life insurance policies have lower “economic benefits” that are reportable on federal income taxes because they are classified as split dollar plans. The income tax burden is thereby reduced for these kinds of policies.