It’s never easy to discuss how your parents’ finances will be handled after they’re gone, but it’s an important conversation to have—especially for families with high-dollar assets. Who will be responsible for paying estate taxes? Will the family business need to be sold? Do your parents want to continue contributing to their favorite charity? Without a plan in place, making these hard decisions can cause a lot of stress for you and your siblings.
Survivorship life insurance allows seniors to formulate a financial plan for their family’s future. Better known as a “last to die” policy, this type of insurance ensures death benefits aren’t paid out until both spouses pass away—meaning there will be enough money to cover costly expenses when they’re gone. State Farm Insurance Agent Steve Cimarolli explained how this type of policy differs from typical joint life insurance plans, or “first to die” policies:
“Many couples know they’ll need extra financial support after one of them dies in order to cover funeral expenses and to continue living a similar lifestyle,” he said. “But those with substantial savings may prefer to wait until both spouses pass before a benefit is paid out.”
When is survivorship insurance beneficial?
According to Cimarolli, “last to die” policies work well for couples with large estates or a lot of money to pass along. He gave the example of a farming couple who chooses to buy a multi-million dollar policy so their children can keep the farm.
And because underwriting for this type of insurance is based on two individuals, it may be easier for a spouse with underlying health conditions to get coverage. It can also be more affordable than separate plans because the premium is based on a single payout.
Here are some other reasons your loved ones may choose survivorship insurance:
- Paying estate taxes – According to the IRS, taxes are due on assets exceeding $12.06 million when the second spouse dies. Considering that the current federal estate tax rate is 37%, that can leave a big chunk of money for heirs to pay.
- Providing for a special needs child – An adult with disabilities may need to live in a group home or skilled nursing facility after his or her parents pass. A survivorship policy can continue to pay for those living expenses.
- Charitable contributions – If your loved one is passionate about a cause, they may choose to make a large donation after they pass.
How do I know which type of life insurance is best for my loved ones?
It’s important to choose a life insurance plan that meets your parents’ wishes. You can find advice on choosing the best insurance representative as well as a list of agents in your area by visiting the National Association of Insurance and Financial Advisors.