What Is Variable Survivorship Life Insurance?
Variable survivorship life insurance is a distinctive type of variable life insurance policy designed to cover two individuals. It provides a death benefit to a beneficiary only after both covered individuals have passed away. It’s also possible to receive a benefit prior to the first policyholder’s death if the policy includes a living benefit rider. This rider often comes at no additional cost and allows access to a portion of the policy death benefit in the event of a terminal illness.
Variable survivorship life insurance is also known as survivorship variable life insurance or last-survivor life insurance.
Understanding Variable Survivorship Life Insurance
Similar to any variable life insurance policy, variable survivorship life insurance includes a cash value component. A part of each premium payment is invested by the policyholder, who bears all investment risk. The insurer provides several investment options for the policyholder to choose from.
The remaining portion of the premium goes toward administrative expenses and the policy’s death benefit. Because of its investment features, this type of policy is legally considered a security and is regulated by the Securities and Exchange Commission.
An even more adaptable variation, called variable universal survivorship life insurance, allows the policyholder to adjust the policy’s premiums and death benefit over time.
Benefits of Variable Survivorship Life Insurance
Policies Allow You To Invest Premiums
Variable survivorship life insurance policies enable policyholders to invest premiums in separate accounts, whose values are influenced by market performance.
Policies Are More Cost-Effective
Usually, variable survivorship life insurance costs significantly less compared to regular single-insured life insurance. Premiums are lower because they are based on the joint life expectancy of the insured parties. Since the benefit only pays out after both individuals have died, the insurance company is generally not required to disburse funds as soon as it would with single-person policies.
Easier to Qualify For
Qualifying for a survivorship life insurance policy is often simpler compared to single-insured life insurance. This is mainly because the insurance companies are less concerned about the health conditions of the individual policyholders, as both must pass away before any benefit is paid out. This results in less stringent underwriting standards and higher acceptance rates.
Estate-Building Potential
Variable survivorship life insurance is recommended not just for estate protection against tax liabilities, but also for estate growth. Similar to traditional life insurance, it guarantees beneficiaries receive a payout, even if the policyholder exhausts their entire estate during their lives.
Estate Preservation Benefits
For individuals who aim to leave their assets to loved ones, survivorship life insurance provides liquidity that can be used to cover various taxes associated with an estate, thus preserving the estate’s value for beneficiaries.
Related Terms: Variable Life Insurance, Universal Life Insurance, Death Benefit, Living Benefit Rider, Securities and Exchange Commission, Estate.
References
- Financial Industry Regulatory Authority. “Insurance”.
