Is Survivorship Life Insurance Right For You
When it comes to estate planning, survivorship life insurance can be a valuable tool for some families. Giannangelo suggests that couples shopping for life insurance consider these questions:
When you die, will your heirs have to pay estate taxes?
If you own a family business, do you know how youll leave ownership interest to your kids who are involved and children who arent?
Do you have a special needs child who will need lifelong financial support?
Are you looking to leave a legacy behind for your family or a charity?
Survivorship life insurance can be a solution to these situations.
When estate taxes are a problem for one of my clients, a survivorship life policy could be a crucial strategy to create liquid monies to help minimize the impact of estate taxes to their heirs, he says.
Estate taxes can wallop your family after the death of the last surviving spouse. The tax is applied to any assets that exceed the federal estate tax exemption amount: For 2020,thats $11.58 million per individual or $23.16 million for a married couple.
Paying an estate tax will mean a significant loss of wealth to heirs. The life insurance policy can provide those funds, so your family doesnt have to sell off assets to pay estate taxes.
Tax laws are constantly changing, so its essential to speak with your tax and legal team, cautions Giannangelo.
Survivorship Universal Life Insurance Quotes: Choosing An Insurance Policy
The premium with a survivorship universal life insurance policy is usually lower than it would be for two separate life insurance policies. With other permanent life policies, the death benefit is paid out upon the insureds death. But survivorship universal life insurance is different in that the death benefit is only paid out when both insureds under the policy die. Wealthy couples are the most likely to opt for this insurance type, but business partners may also opt for it. Often the goal behind survivorship universal life insurance is for the death benefit to cover the cost of estate taxes. In the case of business partners, this insurance may be used to cover the costs of transferring the ownership of a business.
You may also see this policy referred to as a second-to-die insurance.
Typically a survivorship universal life insurance policys death benefit is used to pay federal estate taxes and other estate settlement costs incurred after your death. However, a federal law allows you a marital deduction so you can leave an unlimited amount of assets including the cash value of your universal insurance policys investment portion to your surviving spouse. If you choose that route, then no federal estate taxes are owed upon your death. Instead, your assets merge with your spouses estate and will be taxed when your spouse dies.
Whats the upside of this survivorship universal life insurance policy? It may help pay or off-set those estate taxes.
Who Needs Survivorship Life Insurance
Williams said that survivorship life insurance is usually used by high-net worth individuals to lessen the estate tax burden on inheritances. He said, “If you’re worth more than $6 million you could have an estate tax problem if you leave the entire estate to your kids because the estate tax is due within nine months and must be paid in cash.” He noted this might require your kids to sell what they inherited to pay taxes. However, life insurance proceeds are received income tax-free.
Williams said that survivorship life insurance is good for couples if there’s a disparity in age between couples because the policy will be based on an average of their ages and health, which is a better deal than buying separately. He said that survivorship or “second to die” life insurance also works when one spouse is healthy and the other is not because it is priced based on the healthy person. The insurance company calculates when they have to pay out, usually not until the healthy person dies.
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How To Find Life Insurance Policy On A Deceased Person
Beneficiaries can find life insurance policies from the deceased by contacting the National Association of Insurance Commissioners . A death certificate from the funeral home that conducted the burial or cremation would improve the NAICâs search for forgotten life insurance policies.
The life insurance policy locator service is free with no limitations, and the process could take up to 90 business days.
Be prepared to have as much personal info on the deceased as possible.
How To Pick A Life Insurance Company
The number of life insurance companies providing survivorship life insurance has decreased in the past few years, so your options may be rather limited.
John Hancock Life, Voya Financial and MassMutual are some of the biggest providers of survivorship universal life insurance. If youd like a survivor fixed index universal life insurance policy, check out Allianz Life Survivor.
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Quick Introduction To Survivorship Universal Life Insurance
Survivorship universal life insurance is a type of permanent life insurance that offers flexible premiums and investment options of a universal life policy. Unlike other insurance policies, survivorship universal life insures two lives usually a husband and wife and the policy pays when both insureds die.
Assuming you are a healthy, non-smoker looking for $250,000 of coverage, you can expect survivorship universal life insurance quotes near the following ranges:
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Naming Your Child As Your Life Insurance Beneficiary
Insurance companies canât pay out benefits to people under the age of majority , so if your child is still a minor, youâll need to name a custodian of the funds if you want your child to be the beneficiary of your life insurance policy. If you donât name a custodian in the policy, the court will appoint one, which could result in the funds being tied up.
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Which Type Of Survivorship Life Insurance Policy Is Right For You
Consult with a qualified life insurance professional and consider the following questions:
- Do you need/want to transfer wealth in a tax-efficient manner?
- Do you need to ensure that funds are available for fees, taxes, and other estate expenses?
- Do you need to provide funding beyond your lifetime for care of a child or other dependent with special needs?
- Are you interested in a life insurance policy with a tax-deferred investment component that could potentially increase the amount of your death benefit?
- Do you have assets that are difficult to divide and feel you should equalize your estate among your beneficiaries?
Life insurance needs arise from both personal and business concerns and can include cash for estate tax liabilities, funding a college education for grandchildren, or to fund a trust for a disabled child. For these and similar second death concerns, second-to-die insurance can often be the right policy in estate planning.
*As long as required premium payments are timely made.
All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.
Federal Estate Tax Exemption In 2021
There have been many changes in how estates have been taxed over the years. With the new Biden administration, there certainly could be many more to come as well.
These tax changes have affected the purchasing decisions on life insurance for affluent families throughout the United States.
The biggest change to the estate tax code was the recent increase in an unlimited marital deduction in early 2018.
Under current federal tax law, a marital deduction permits you to leave an unlimited amount of assets to your surviving spouse.
If you leave all your assets to your spouse, no federal estate taxes are owed at the time of your death. Those assets then become part of the spouses estate and might be taxed when your surviving spouse eventually dies.
A husband and wife can each get their own exemption of $11.7 million, meaning a couple will be able to give away $23.4 million tax-free in 2021 , but its not automatic.
An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of the federal estate tax. But, to utilize your late spouses unused exemption, an election called portability needs to be made on the estate tax return of the first spouse to die.
This means that a married couple can pass on a whopping $23,400,000 to their children free from federal estate taxes in 2021!
The current estate tax rates of between 18-40% apply to the estates value above the exemption amount.
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Highlighted Product With This Concept
Under current federal tax rules, clients generally may take federal income-tax-free withdrawals up to their basis in the policy or loans from a life insurance policy that is not a Modified Endowment Contract . Certain exceptions may apply for partial withdrawals during the policys first 15 years. If the policy is an MEC, all distributions are taxed as ordinary income to the extent of gain in the policy, and may also be subject to an additional 10% premature distribution penalty prior to age 59½, unless certain exceptions are applicable. Loans and partial withdrawals will decrease the death benefits and cash value of the life insurance policy and may be subject to policy limitations and income tax. In addition, loans and partial withdrawals may cause certain policy benefits and riders to become unavailable and may increase the chance the policy may lapse. If the policy lapses, is surrendered, or becomes an MEC, the loan balance at the time would generally be viewed as distributed and taxable under the general rules for distribution of policy cash values.
When sold by New York State-based Financial Professionals, BrightLife® Grow is issued by Equitable Financial Life Insurance Company .
Cash Value Within Permanent Life Insurance Policies
When you make premium payments on a permanent life insurance policy, a portion of the money goes toward a cash value account. Once you build up the cash value in the account, you can borrow against it or withdraw it. But if youve depleted your cash value and theres not enough money within the policy to cover policy charges, you may have to pony up more premiums in order to prevent the policy from lapsing.
See the Forbes ratings of the best life insurance companies for cash value policies.
If you took out a loan from the cash value that you havent paid back, the loan amount and interest will be deducted from the death benefit if you pass away.
If you decide you no longer want a permanent policy, you may be able to walk away with some cash value. If you terminate the policy, the insurer will give you the cash value minus any surrender charge.
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Types Of Life Insurance Policies
For the most part, there are two types of life insurance plans – either term or permanent plans or some combination of the two. Life insurers offer various forms of term plans and traditional life policies as well as “interest sensitive” products which have become more prevalent since the 1980’s . In New York State, the Department of Financial Services must approve any life insurance policy before a company can issue it to consumers and New York Insurance Law provides for standard provisions that must be included in every policy.
Con: Joint Policies Arent Easily Divided When People Split Up
Planning for divorce makes many people more uncomfortable than planning for death. And while divorce is by no means a certainty, it does happen. Some joint life insurance policies may not allow the coverage to be split into two individual policies. If your insurance company doesnt have a rider2 that allows policy splitting and you dont want to continue to have a policy that ties you to your ex you may have to let the coverage lapse. You can try to get an individual policy at that point, but as an older applicant, your coverage may be more expensive.
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Is There More Than One Type Of Universal Life Policy
Actually, there are several different kinds of Universal Life Insuranceeach designed to meet a unique set of needs. Heres a quick overview.
If you’re looking for long-term protection with the ability to accumulate some cash value over time, our Universal Life may be for you. Some of our clients prefer this product because it allows them to customize the protection to best meet their needs while also managing their costs.
If you’re like our clients who value a guaranteed death benefit, but dont need to accumulate cash value, then Custom Universal Life Guarantee might work for you. You pay a set premium to maintain the coverage you need for as long as you choose.
Protection Up to Age 90
If you’re a business owner or someone who needs a significant amount of life insurance protection for a specific period of time , Protection Up to Age 90 offers a cost-effective alternative to permanent insurance. It allows people to get the level of protection they need , the way they need it.
What if I want even more flexibility and value?
In most cases, there are a variety of ways to increase your level of protection or customize your policy. Your New York Life financial professional will be happy to share with you all the add-ons, which are also known as riders, that are available with each policy. Best of all, many of the riders are free.
Protecting for health events
Get your money back
How Does This Strategy Work
Instead of drawing income from investments that are fully or partially taxed during retirement, your clients can help keep their tax bracket down by integrating distributions from cash value life insurance into the mix. By purchasing life insurance, your clients can protect their families and potentially build policy cash values. At retirement, they can take tax-free loans or withdrawals from the cash value to supplement their retirement income, thus helping to minimize their taxes.
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What Is Survivorship Universal Life Insurance
Survivorship universal life insurance provides money for others after you and your partner pass away.
Survivorship universal life insurance is often referred to as second-to-die insurance. It covers two people and pays a benefit only after both covered individuals have passed away. Since it costs less than two individual permanent policies, it’s an affordable option to leave a larger nest egg for your heirs or favorite cause.
Considerations When Purchasing Life Insurance
Discussing the importance of owning life insurance can be a sensitive topic after all, few people like to talk about death. However, if others depend on your support, or if you have substantial assets that you wish to transfer to future generations, life insurance can be an important financial tool. There are many types of insurance and features for you to consider if you are shopping for a plan.
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Survivorship Life To Pay Estate Taxes
Many high net worth individuals look at survivorship life insurance because their estate is so large that it will eventually create an estate tax problem.
How are survivorship life insurance policies helpful in estate planning?
A Survivorship life policy provides liquidity to avoid selling off everything at fire-sale prices to pay federal estate taxes owed after both spouses pass away.
The beneficiaries of a second to die estate planning policy are normally your children, an irrevocable life insurance trust, or a Dynasty Trust.
Since spouses do not need to pay estate taxes when assets are passed between married couples, ordinary life insurance that pays out on the first death is normally not needed.
If you think your estate will eventually create a tax problem, getting started sooner will save you a lot of money on survivor protection.
One of the biggest advantages of estate planning with life insurance is that estate insurance creates an immediate estate for your family.
The death benefits from a survivorship universal life insurance will provide immediate cash to pay any estate taxes due.
Wealthy couples should consider the value of their current estate and then account for the growth of their estate during their lifetime.
An estate without any tax current tax liability could eventually grow large enough to be subject to estate taxes.
Things To Consider When Purchasing Survivorship Life Insurance
When purchasing a survivorship life insurance policy, make sure to discuss these options with your financial planner:
- If you would like a whole life policy vs. a variable universal life policy. These two policies have different investment/savings options that can impact cash values.
- Find out if your policy has the option to split the policy into two separate policies if needed. Your situation in life can change, a good insurance policy will have the ability to change with you. Some insurance policies have a rider that allows you to split the policy in certain circumstances, for example in a divorce.
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