Survivorship Life Insurance
A life insurance policy that covers two people (usually spouses) and pays the death benefit only after both insured individuals have died. Also known as 'second-to-die' insurance, it's primarily used for estate planning and is typically less expensive than insuring each person separately.
Example
“The Johnsons purchased a $2 million survivorship life insurance policy to help their children pay estate taxes after both parents pass away.”
Memory Tip
Think 'Second to die = Survivorship' - the survivor lives on, but the policy pays when the second person dies.
Why It Matters
This insurance is crucial for wealthy couples who want to preserve their estate for heirs by providing liquidity to pay estate taxes. It's more affordable than individual policies because the probability of both people dying simultaneously is lower than either dying alone.
Common Misconception
People often think survivorship insurance pays out when the first spouse dies, but it actually only pays after both spouses have died. Some also believe it's always cheaper than individual policies, but this depends on the ages and health of both insured parties.
In Practice
A healthy couple, both age 60, might pay $8,000 annually for a $1 million survivorship policy, compared to $15,000 for separate $500,000 policies on each person. If the husband dies at 75 and the wife dies at 82, their children receive the full $1 million death benefit to help pay the estate taxes on their $5 million estate.
Etymology
From 'survivor' (one who outlives another) plus the suffix '-ship' indicating a state or condition, combined with 'life insurance,' literally meaning insurance based on surviving one's partner.
Common Misspellings
Compare insurance quotes and save
Related Terms
More in insurance
Other insurance terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.