The last to die insurance is a form of whole life insurance that is both interesting and affordable. It is especially rewarding if you are planning to leave your estate to your heirs. It can cut tax costs, and it can save up to 40% of individual insurance costs. It can cover two individuals at the same time, and it pays out until the last surviving insured party expires. Most commonly, it is a husband and wife duo who buys a survivorship life insurance policy. They are an excellent tool for providing liquidity to assets.
Term insurance and second to die insurance: what’s the difference?
Term life insurance pays out when the insured individual dies. The second to die term life insurance pays out when the last surviving individual, covered by the policy, passes away since they insure two people at one go. There can be multiple beneficiaries, who are usually children of the couple insured by the second to die insurance policy. Sometimes, the beneficiaries are also charities and trusts that the insured can set up. Similarly, the trust also gets the money once the last survivor dies.
What are the associated costs of a survivorship insurance policy?
Before you plunge into the world of insurance policies and trust funds, you need to find out if you are monetarily ready to pay for a new second to die policy. So here’s a brief account of the costs you will have to bear during the term –
You need to consult an accountant to see if the insurance plan is right for you and your estate. You need someone experienced and someone you can trust. That is not a cheap combination. Be ready to spend some sweet cash on a good accountant at the very beginning.
You need to consult a good lawyer too. It is mainly for the irrevocable life insurance trust (ILIT) that can protect the interest of the dead and the beneficiaries. Your lawyer should be able to guide you away from high tax expenses.
We are guessing you are looking for a long-term plan that pays well in the end. Therefore, you need to ensure that you have enough liquid assets to pay for the premiums each month (or each year, as per your policy requirements) till term completion. If you want the plan to be worthwhile, you should expect a high premium cost. Sometimes, policy premiums shoot up once your trust buys the policy.
When you are buying survivorship insurance, you can only go so far without setting up a second to die trust. Then you will need someone adept and reliable to manage your trust. You will have to pay your trustee to do this job.
Taxes and taxes
Uncle Sam loves his taxes. If you die within three years of transferring your life insurance to the new trust, the federal government will make your payout taxable by including the death benefit within the estate. The payout is going to be 100% taxable and at “non-friendly” tax rates. A trust only has to make about $12,000 to be in the very high tax rate zone.
Here once again, you will need to employ a good accountant and a lawyer, in advance, to ensure that the estate handover is smooth and the tax rate is minimum. Since the primary objective of a second to die policy is the smooth transition of assets and estate to the heirs, it is also your duty to make sure that everything goes as planned during the payout.
Is a survivorship life insurance policy worth your time and money?
People choose different policies for different reasons. While whole life or term insurance covers one individual and pays the beneficiary upon his/her death, a last to die policy will ONLY payout to listed beneficiaries after both the insured parties expire. These second to die insurance policies are tailor-made for those who have a high net worth of assets and estate to pass on to their heirs. Their primary intention is to keep their estate whole and out of tax controversies.
If you are looking towards willing your estate for charity or a trust, then the second to die policy is perfect for you. In case you have a considerable property that might attract taxes after your passing, and you do not want your heirs to sell parts of your estate as a counter measure, you need to apply for a second to die policy. Second to die insurance trust is undoubtedly a strong reason for you to opt for a survivor ship policy.
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