insurance

Second-to-Die Life Insurance

A type of life insurance policy that covers two people (typically spouses) but pays the death benefit only after both insured individuals have died. Also known as survivorship life insurance, it's often used for estate planning and providing funds to pay estate taxes or leave inheritances to heirs.

Example

“The wealthy couple purchased a $2 million second-to-die life insurance policy to ensure their children would have funds to pay estate taxes without having to sell the family business.”

Memory Tip

Think 'Last One Standing' - the policy only pays when the last person standing (the survivor) also passes away.

Why It Matters

This insurance is crucial for estate planning because it provides liquidity to pay estate taxes, transfer business ownership, or fund inheritances when the surviving spouse's death would otherwise force heirs to sell assets. It's typically less expensive than two individual policies since the probability of both deaths occurring is lower in the short term.

Common Misconception

People often think this type of policy provides financial protection for the surviving spouse, but it doesn't pay anything until both spouses die. The surviving spouse receives no death benefit, so separate life insurance may be needed for income replacement during the survivor's lifetime.

In Practice

Robert and Linda, both 60, have a $5 million estate that will face $1.5 million in estate taxes when both die. They purchase a $1.5 million second-to-die policy with annual premiums of $25,000. When Robert dies at 75, Linda receives no payout but continues paying premiums. When Linda dies at 82, their children receive the $1.5 million death benefit tax-free, providing exactly the funds needed to pay estate taxes without selling family assets. The total premiums paid ($550,000) were significantly less than buying separate $1.5 million policies for each spouse.

Etymology

The term reflects the policy's structure where the death benefit is paid upon the 'second to die' of the two insured parties, distinguishing it from traditional individual life insurance.

Common Misspellings

Second to Die Life InsuranceSecond-to-Die Life Insurence2nd-to-Die Life InsuranceSecond-to-Die Life Insureance

More in insurance

Other insurance terms you should know

deductibleThe amount you pay out-of-pocket before your insurance begin…insurance premiumThe amount paid periodically to an insurance company in exch…deductibleThe amount a policyholder must pay out of pocket before insu…copayA fixed amount paid by an insured person at the time of a me…coinsuranceA cost-sharing arrangement where the insured pays a percenta…out-of-pocket maximumThe most an insured person will pay for covered healthcare s…