Second-to-Die Insurance

Second-to-die insurance is a type of life insurance for two people (typically married) that pays out only after the last surviving person on the policy dies. Second-to-die insurance is frequently used in estate planning, most commonly to fund an irrevocable life insurance trust (ILIT) or to pass death benefits to children or grandchildren.

In contrast to traditional life insurance, the surviving partner receives no benefits after the spouse dies. Typically, a married person will name their husband or wife as a beneficiary, and they will receive the death benefit after the policyholder dies—but the policyholder can also name any beneficiary who isn't a spouse.

How Second-to-Die Insurance Works

Parents who purchase this type of insurance usually have their children in mind. A second-to-die insurance policy, for example, could be designed to pay estate taxes or support any surviving children. It's also referred to as "dual-life insurance" or "survivorship insurance."

Second-to-die insurance is typically used for estate planning, and it typically covers two or more people for less money than individual policies would. After both spouses die, the death benefit from a survivorship life insurance policy is typically calculated to pay federal estate taxes and other estate-settlement costs.

The second-to-die life insurance product was created in the 1980s in response to a new law that allowed married couples to postpone paying federal estate taxes until both spouses died. This law prevented surviving spouses from depleting their assets to pay large tax bills, putting additional financial strain on other remaining heirs.

The annual premium for a second-to-die life insurance policy covers the death benefit. The excess grows tax-free, accumulating cash value that is supposed to cover some or all of your higher premiums as you get older.

Reasons to Purchase Second-to-Die Insurance

More Economical

The premium is based on a couple's combined life expectancy, and because it pays nothing until both spouses die, it is significantly less expensive than purchasing separate policies for both people with the same total dollar amount in benefits.

Easier Qualification

It doesn't matter if one person isn't in good health because both policyholders must die before benefits are paid. If a person in poor health applies for a single policy, he or she may be denied life insurance.

Estate Planning

Second-to-die life insurance can, in some cases, help build an estate rather than just protect it from taxes. The death benefit of a second-to-die policy, like traditional life insurance, can ensure that your beneficiaries receive a minimum amount of money, even if all of the insured's savings were depleted during their lives.

Maintains an Estate

Many people purchase second-to-die life insurance policies to ensure that their estate transfers to their beneficiaries are complete. They may want to know, for example, that the family cabin will be used for generations rather than sold to pay death taxes.

Frequently Asked Questions

Who should own a second to-die policy?

Survivorship life insurance is frequently recommended for wealthy families in which the death of one spouse would not place a significant financial burden on the surviving spouse. It has also been used by wealthy families to reduce their heirs' estate tax exposure.

Is second to-die life insurance a good idea?

It can be, because the premiums for a second-to-die policy are often lower than those for standard policies that insure only one person. However, due to the way it is written, it will only pay out after both of the insured have died.

What is the difference between joint and second-to-die insurance?

Joint life insurance policies cover more than one (often two) insured people on the same policy. First-to-die or second-to-die can be used to describe a joint life. In the former case, the policy pays out if either of the insured dies. In the latter case, it only pays out after the second insured has died.