Joint and survivorship life insurance policies issue coverage based on the lives of two insured’s for which benefits are paid based on the sequence and timing of the their deaths. A joint life insurance policy pays a death benefit at the time that either of the two insureds has died. A survivorship life insurance policy pays a death benefit at the time of the second insured has died. These types of life insurance policies are designed for use in family, business and estate planning situations to provide for cash liquidity needs at a particular point in time. A joint (first-to-die) life insurance policy could be used to pay off a home mortgage at the death of the first spouse or used to fund a buy-sell agreement between two business partners. A survivorship (second-to-die) life insurance policy could be used to provide care for a special needs child at the second parent’s death or used to pay estate taxes due at the second spouse’s death. Joint and survivorship policies need to be funded over the life expectancies of both insureds with permanent contracts. The policy types that can be used to fund permanent life insurance needs are:
- Whole Life Policies
- Universal Life Policies
- Indexed Universal Life Policies
- Variable Life Policies
The above mentioned policies provide a wide range of features to fund permanent life insurance coverage over both life expectancies. All things held constant, the mortality costs per thousand dollars of coverage for joint life contracts is greater than the survivorship life contracts because of the comparative likelihood of the mortality events. Premium payments that are made in excess of the cost of insurance and administrative costs are accumulated as policy cash values. Permanent life insurance policy accumulated cash values are credited with a return on the accumulated balance based on the type of policy. Depending on the type of policy and riders the life insurance policy can provide:
- No-lapse guarantee premiums;
- Vanishing or lifetime premiums;
- Fixed rates of return ; and
- Variable sub accounts.
A financial advisor can help evaluate the liquidity needs you require upon the death of the client and their spouse, estate, or business in comparison with the anticipated cash balances to determine the amount of any shortfall. Upon the determination of the unfunded cash needs, a life insurance strategy can be planned. A joint or survivorship life insurance policy can be the solution for you and your family to remain on your True North path.
