Definition

Policy on two lives, pays at second death:

Key characteristics:
- Two insureds: Typically husband and wife
- Single policy: One policy covering both lives
- Pays once: Death benefit paid only after both insureds die
- Lower premiums: Less expensive than two individual policies
- No benefit at first death: Beneficiaries wait until second death

Structure:

Insured 1: Spouse A
Insured 2: Spouse B
Beneficiaries: Children

First death (Spouse A): $0 paid
Second death (Spouse B): Full death benefit paid to children

How It Works

Timeline:

Policy purchased: Year 1
↓
First death (Spouse A): Year 20
  - No death benefit paid
  - Policy continues
  - Premiums may continue
↓
Second death (Spouse B): Year 25
  - Death benefit paid to beneficiaries
  - Policy terminates

Example:

Couple: John and Mary (both age 60)
Policy: $2 million survivorship whole life
Annual premium: $25,000

Age 75: John dies
  Death benefit paid: $0
  Policy status: Continues on Mary's life

Age 82: Mary dies
  Death benefit paid: $2,000,000
  Beneficiaries: Children receive $2M

Mortality Advantage

Insuring two lives reduces risk to insurer:

Probability of two deaths:
- Lower risk: Both must die before benefit paid
- Longer expected duration: Typically many years between deaths
- More premium collected: More time to collect premiums
- Better mortality: Statistically, longer time frame

Savings: 30-40% less than two individual policies

Comparison:

Individual policies:
Husband (age 60): $500,000 whole life = $12,000/year
Wife (age 60): $500,000 whole life = $10,000/year
Total coverage: $1,000,000
Total premium: $22,000/year

Survivorship policy:
Both (age 60): $1,000,000 second-to-die = $13,000/year
Savings: $9,000/year (41%)

Or get more coverage:
$2,000,000 second-to-die = $20,000/year
More coverage for less: $2M vs. $1M for similar premium

Underwriting Advantage

Easier to qualify:
- Based on both lives: Averages health of both insureds
- One healthy spouse helps: Good health of one offsets other
- Reduced individual impact: Poor health less critical

Example:

Husband: Excellent health (preferred rates)
Wife: Diabetes, heart condition (substandard)

Individual policies:
Husband: $500K at $10,000/year
Wife: $500K at $35,000/year (rated) or declined

Survivorship:
Both: $2M at $22,000/year (standard rates)

Result: More coverage, better rates, both covered

Estate Tax Problem

Why second-to-die timing matters:

Unlimited marital deduction:
- First death: Assets pass to surviving spouse tax-free
- No estate tax: Unlimited marital deduction applies
- Tax deferred: Postponed until second death

Second death - estate tax due:
- No marital deduction: No surviving spouse
- Estate tax triggered: Assets pass to heirs
- 40% tax rate: On amounts over exemption
- Need liquidity: Cash to pay estate tax

Example:

Estate value: $30 million
Estate tax exemption (2024): $13.61 million per person
Portability: First spouse's unused exemption

First death:
Estate: $30 million
To surviving spouse: All (marital deduction)
Estate tax: $0

Second death:
Estate: $30 million
Combined exemption: $27.22 million (both spouses)
Taxable estate: $30M - $27.22M = $2.78 million
Estate tax: $2.78M × 40% = $1.11 million

Problem: Need $1.11 million cash to pay IRS within 9 months

The Solution

Survivorship life provides estate tax liquidity:

Benefits:
1. Death benefit at right time: Pays when estate tax due (second death)
2. Income tax-free: Death benefit not subject to income tax
3. Immediate cash: Available to pay estate tax
4. Preserves estate: Don't have to sell assets
5. More cost-effective: Lower premium than two policies

Strategy:

Estate: $30 million
Projected estate tax: $1.11 million

Purchase: $2 million survivorship policy
Annual premium: $25,000
Owner: Irrevocable Life Insurance Trust (ILIT)

Second death:
ILIT receives: $2,000,000 (income tax-free)
Estate tax: $1,110,000 (paid from proceeds)
Remaining: $890,000 (additional inheritance)

Ownership Structure

Irrevocable Life Insurance Trust (ILIT):

Why use ILIT:
- Avoid estate inclusion: Keep proceeds out of taxable estate
- No incidents of ownership: Insureds don't own policy
- Pay estate tax: Trust can loan money to estate or buy assets

Structure:

Grantor: Creates and funds trust
Trustee: Manages trust, owns policy
Insured: Husband and wife
Beneficiaries: Children (trust beneficiaries)

Annual gifts to trust: $25,000 (premium)
Crummey notices: Beneficiaries have withdrawal rights
Qualifies for: Annual gift tax exclusion

Second death:
Trust receives: $2M death benefit
Outside estate: Not included in taxable estate
Used to: Pay estate tax, provide liquidity

Special Needs Planning

Support for disabled child:

Problem:
- Lifelong care: Child needs care after parents gone
- Government benefits: May lose if inherit too much
- Funding needed: Long-term financial support

Solution:

Survivorship policy: $3 million
Owner: Special needs trust
Beneficiary: Special needs trust

Second death:
Trust receives: $3 million
Used for: Supplemental care without affecting benefits
Trustee manages: Lifetime support for child

Charitable Giving

Wealth replacement for charity:

Scenario:
- Charitable remainder trust: Gives assets to charity, receives income
- Heirs disinherited: Assets go to charity, not children
- Wealth replacement: Survivorship life "replaces" assets for heirs

Example:

Give to charity: $5 million (charitable remainder trust)
Income to couple: $200,000/year for life

Purchase survivorship: $5 million
Premium from income: $50,000/year
Owner: ILIT
Beneficiaries: Children

Result:
Charity gets: $5 million at second death
Children get: $5 million life insurance
Couple received: Lifetime income + tax deduction

Business Succession

Key person or buy-sell:

Two key persons:

Business: Worth $10 million
Key persons: Founder and CEO (married couple)
Policy: $5 million survivorship
Owner/beneficiary: Business

Second death: Business receives $5M to facilitate transition

Partnership buyout:

Two partners: Married couple
Business value: $8 million
Other partners: Need to buy their share

Survivorship policy: $4 million (couple's 50% share)
Second death: Partners use proceeds to buy out estate

Survivorship Whole Life

Traditional permanent insurance:
- Level premiums: Fixed for life
- Guaranteed cash value: Builds predictably
- Guaranteed death benefit: Will not lapse if premiums paid
- Dividends: May pay dividends (if participating)
- Conservative: Safest option

Example:

Couple age 65: $2 million survivorship whole life
Annual premium: $40,000 (guaranteed level)
Cash value year 20: $600,000 (guaranteed)
Death benefit: $2,000,000 (guaranteed)

Survivorship Universal Life

Flexible premium permanent:
- Flexible premiums: Can vary payments
- Death benefit options: Level or increasing
- Cash value: Credited with interest
- Lower initial cost: Lower premiums than whole life
- Interest rate risk: Cash value depends on rates

Example:

Couple age 60: $3 million survivorship UL
Planned premium: $35,000/year
Minimum premium: $20,000/year
Guaranteed to age 100: If pay $35K annually

Flexibility:
Year 1-10: Pay $35,000
Year 11-20: Pay $25,000 (reduce)
Year 21+: Pay $45,000 (increase)

Survivorship Variable Universal Life

Investments in separate accounts:
- Investment choices: Stock/bond sub-accounts
- Growth potential: Higher cash value growth
- Risk: Cash value can decrease
- Securities license: Agent must be licensed
- Good for younger couples: Time to recover from downturns

Survivorship Guaranteed Universal Life

No-lapse guarantee:
- Minimal cash value: Little to no cash value
- Guaranteed death benefit: If scheduled premiums paid
- Locked-in premium: Must pay scheduled amount
- Estate planning favorite: Guarantees death benefit to age 100+

Example:

Couple age 70: $5 million guaranteed UL
Annual premium: $75,000
Guaranteed to: Age 121 (second to die)
Cash value: Minimal (~$10,000)

Benefit: Guaranteed $5M benefit regardless of interest rates

Convert to two individual policies:

Allows separation:
- Divorce: Split into two individual policies
- Estate planning change: Separate coverage
- Second marriage: May want individual policies

Terms:
- No additional underwriting: Guaranteed insurability
- Within time limit: Typically 3-5 years from issue, or within 1 year of divorce
- Same total death benefit: Split between two policies

Example:

Survivorship policy: $2 million

Divorce after 8 years
Split option exercised:

Husband policy: $1 million individual whole life
Wife policy: $1 million individual whole life

No medical exam required
Premiums higher (now two individual policies)

Opposite of survivorship:

How It Works

Pays at first death:
- Two insureds: Usually business partners or married couple
- Pays at first death: When first insured dies
- Policy terminates: After first death benefit paid
- Higher cost: More expensive than survivorship (pays earlier)

Uses

Income replacement:

Two-income couple
Each earns: $150,000
Need coverage: If either dies

First-to-die policy: $1 million
Pays: When either spouse dies
Cost: Less than two $1M policies

Survivor receives: $1M to replace lost income

Business partners:

Two partners
Need: Buy-sell funding
First-to-die: $3 million

First partner dies:
Survivor receives: $3M to buy out deceased's interest

Comparison to Survivorship

Combined age rating:
- Joint life expectancy: Based on both lives
- Longer life expectancy: Two lives outlive one
- Health of both matters: Both are underwritten
- Blended rating: Average of two health ratings

Example:

Husband age 65: Preferred health
Wife age 63: Standard health (controlled diabetes)

Individual ratings:
Husband: Preferred Plus
Wife: Standard (Table 2)

Survivorship rating: Preferred
Result: Better rate than wife alone, coverage for both

Flexible structures:

Continuous pay:
- Pay until second death
- Lower annual premium
- Longest payment period

Survivorship pay (first death):
- Pay until first death only
- Moderate premium
- Policy paid up at first death
- Common choice

Limited pay:
- Pay for 10-20 years
- Highest annual premium
- Guaranteed paid-up

Example:

$2 million survivorship whole life (both age 60):

Continuous pay: $24,000/year (for life)
Pay to first death: $32,000/year (until first dies)
20-pay: $50,000/year (20 years, then paid up)
Single premium: $800,000 (one payment)

• Survivorship = second-to-die: Pays only after both insureds die
• Lower cost: 30-40% less than two individual policies
• Estate tax planning: Primary use - provides liquidity at second death
• Unlimited marital deduction: First death has no estate tax; second death triggers tax
• ILIT ownership: Keep proceeds out of taxable estate
• Underwriting advantage: One healthy spouse can offset other's health issues
• No benefit at first death: Beneficiaries receive nothing until second death
• Split option: Allows conversion to two individual policies (divorce, separation)
• First-to-die: Opposite - pays at first death, used for income replacement
• Survivorship whole life: Most conservative, guaranteed cash value and death benefit
• Guaranteed UL: Minimal cash value, guaranteed death benefit to age 100+
• Special needs planning: Fund special needs trust for disabled child
• Charitable wealth replacement: Replace assets given to charity
• Joint life expectancy: Longer than single life, reduces premium
• Estate tax rate: 40% on amounts over exemption at second death