Survivorship Life Insurance
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Survivorship Life Insurance

Survivorship Life Insurance. Once upon a time, someone noted that nothing in this life is said to be certain except death and taxes. And that is pretty much the reason why there is Survivorship Life insurance.

Survivorship Life is a specially designed Universal or Whole life product for the estate tax market. This type of life insurance product covers the lives of two people instead of one. And upon the death of the surviving spouse, the policy pays the full death benefit to the designated beneficiary.

You see, under current law, you can transfer assets of six hundred thousand dollars to your heirs on a tax-free basis. That means that a husband and wife can each use their individual exemption to transfer an estate of up to one-point-two million dollars without tax liability.

But let's say that the two of you have a combined estate of over one-point-two million dollars. Your tax advisors will tell you that once the surviving spouse dies, a large estate tax bill will be due within nine months — and in cash.

How will your estate pay for it? Well, if your estate consists of assets such as stocks, bonds, real estate, or a family business, your heirs may be forced to sell those assets cheap in order to pay the IRS. But if you've purchased a Survivorship Life policy, your heirs will have the cash they need to pay those estate taxes. And most importantly, they will be able to retain estate assets that it took you a lifetime to build.

Now, many people don't understand why survivorship life insurance is not based on the economical term life insurance. Well, there are two very simple reasons for this. First, not too many of us actually know when we will die. And since term life can only be purchased for a specific period of time — ten, twenty or thirty years — applying it to Survivorship Life would defeat the very purpose of this product.

The second reason is, the value of term life does not increase over time. Let's say your total estate is worth three million dollars today. However, your estate will most likely grow each year, and that will increase your estate tax liability. Since a term life policy is not designed to grow in value, the proceeds would not cover the increase in estate taxes.

One thing to remember: The proceeds of a Survivorship Life policy are typically considered part of the estate and thus will increase the estate assets. We strongly urge you to seek the advise of your tax attorney, your CPA and your insurance advisor before purchasing this type of insurance policy.

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