With so many different types of life insurance, it is easy to get turned around when looking for the right fit for you. Along with the benefit of having multiple options, comes the responsibility of researching which type will be a match for your current situation. If you have been searching for any length of time, you may have come across “survivorship” life insurance policies, and you might be scratching your head and wondering “what the heck is that?!” In this article, we will explore the advantages and disadvantages of a survivorship policy so you can better decide if it is right for you and your loved ones.
What is Survivorship insurance?
Survivorship life insurance works in a way that only makes the benefit collectible in the event of the death of both participants on the same policy. When one of the partnered insured’s passes, the benefit is not released. It is only after both of the policyholders pass that the policy will be released to the beneficiary. In this case, the beneficiary would not be the partnered insured (or spouse in many cases) since there will be no benefit until after both parties are gone.
Who would benefit from this type of insurance?
Typically, someone would opt for this type of insurance if the partnered couple has no immediate need for the insurance in the case of the passing of one or the other. This type of policy is typically left for children or other dependents with the intention that if one parent was still alive they would be able to provide for the family. This insurance is typically only to cover needs if something happened to both.
People will also use survivorship insurance to leave an inheritance to beneficiaries as a way to leave a legacy and wealth for their loved ones. This is a policy that can be strategized to leave larger amounts that will not be used by either partner or spouse before it is passed on.
For some, if one spouse or partner is hard to insure, a policy like this can make it more accessible to get insurance for that harder to insure the person. By having the built-in factor of a second person’s passing, it makes it less risky for the insurance company. Costs for survivorship insurance tend to be lower than some of the other available options as well, making it more appealing in some circumstances where cost is a prohibiting factor.
What are some of the downsides to be aware of?
With this type of insurance, while there are reasons some would benefit from this setup, there are also very obvious and serious downsides. If the income or savings of either spouse would not be sufficient to live on and sustain without the other (and any dependents they may have), this policy would not offer any help in replacing funds after one partner’s death. The surviving partner would receive no benefit at the time of their partner’s death and would have to rely on other funds or income. If funds are needed to pay for essentials or the lifestyle a family was accustomed to, this insurance policy will fall short on providing for the needs of the surviving partner. Picking a life insurance policy is a highly personal decision based on not only emotional components, but also risk, lifestyle, and situational needs. As such, your life insurance needs may change as you advance in age and life. If survivorship insurance sounds like a plan that may benefit your situation, reach out to a trusted broker or professional to take a look at your options. Get involved and take the time to care for your family’s future, now.