Recently, sales have soared for survivorship insurance. With the new estate tax laws going into effect in 2014, survivorship insurance is being bought and sold as a solution. Survivorship insurance policies insure two people under one policy and are much cheaper than the purchase of two separate life insurance policies. In the article below,”Sales of survivorship Insurance Gain,” author, Veronica Dagher, gives and in depth explanation as to the growing popularity of survivorship policies.
More ‘second-to-die’ policies are sold as estate-tax issues clarify
By Veronica Dagher
Some wealthy people are taking another look at survivorship insurance.
The relatively obscure product, also known as “second-to die” insurance, insures two lives, usually spouses, with one policy.
Like its name indicates, the product pays out the benefit after the death of the second insured. The policies are typically used by affluent couples to pay for any estate-tax liability they may incur if their assets exceed the estate-tax exemption amount, says Paul LaPiana, senior vice president at MetLife Premier Client Group.
If the policy is owned by an irrevocable trust and the trust is the beneficiary of the policy, the death benefit may not be includable in the insured’s estate and is exempt from income tax, says Mark Petersen, vice president of affluent wealth planning at Carson Wealth Management Group in Omaha, Neb.
A single survivorship policy is also generally cheaper than two individual life-insurance policies.
Over the past year, there’s been an increase in purchases of these policies, says Elaine Tumicki, corporate vice president of insurance research at LIMRA, a life-insurance services group based in Windsor, Conn. Sales of survivorship life-insurance policies were up 13% through June, compared with the same period a year earlier, she says. The increase is due partly to anticipated price hikes, but could also be the result of the resolution of federal estate-tax policy, Ms. Tumicki says. Now that there’s clarity about estate taxes, she explains, some people may have stopped postponing some of their estate planning.
Indeed, even though fewer estates are now subject to federal estate tax, some financial advisers say second-to-die insurance still makes sense in certain situations.
Many couples live in states that impose an estate tax with a lower exemption level, so these policies can help provide liquidity for state estate tax, says Carol Kroch, managing director, wealth and philanthropic planning at Wilmington Trust.
The insurance may also be particularly useful for estates with significant illiquid assets, such as a private business, a real-estate portfolio or an art collection, that the family doesn’t want to sell upon the second spouse’s death to pay taxes, says John Voltaggio, a managing director at Northern Trust.
“It helps the family pass the illiquid assets on to future generations,” says Mr. Voltaggio.
A survivorship policy also may help create tax-free funds for heirs to replace the value of assets a decedent left to charity, says Mr. Petersen.
In other cases, it can be used for estate equalization for people with many children, regardless of net worth, says Brett Berg, vice president of advanced marketing, individual life insurance with Prudential Insurance. For example, parents may leave the family home to a child living nearby, then try to equalize their children’s inheritance by making their other children the beneficiaries of the policy, he says.
The policies are also frequently used in special-needs-trust planning, says Eve Kaplan, a financial planner in Berkeley Heights, N.J.
Experts advise seeking counsel from insurance, legal and tax experts before buying a policy. Survivorship policies aren’t recommended if the surviving spouse is likely to lack the cash flow to pay off a mortgage or medical bills, replace earned income or pay future premiums, says Damon Bates, vice president at Mass Mutual.
Consumers also need to consider the opportunity cost of not investing the premium dollars in a diversified investment portfolio which wouldn’t be encumbered by the insurance costs, says Mr. Voltaggio.