Variable survivorship life insurance is a unique financial product that combines elements of life insurance and investment opportunities. Specifically designed to cover two individuals, this type of policy pays out a death benefit to beneficiaries only after both insured individuals have passed away. It is not only a safety net for your loved ones but a powerful tool for estate planning and investment.
What Is Variable Survivorship Life Insurance?
Also known as "survivorship variable life insurance" or "last-survivor life insurance," this policy allows for the accumulation of cash value over time, which can be accessed prior to the death of the insured individuals under certain conditions. One common feature is the living benefit rider, which may allow policyholders to access a portion of the death benefit in the event of a terminal illness, often without additional costs.
Key Components
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Cash Value Component: A portion of each premium paid goes into a cash value account that can be invested in various financial instruments. The policyholder bears the investment risk, making it crucial for policyholders to select investments wisely from a list typically provided by the insurer.
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Death Benefit: Unlike traditional life insurance, where the death benefit is paid upon the death of the individual, here, it is contingent upon the death of both individuals covered under the policy.
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Regulatory Considerations: Variable survivorship life insurance policies are treated as securities due to their variable investment components, meaning they are regulated by the Securities and Exchange Commission (SEC).
Flexible Options
The more adaptable version is known as variable universal survivorship life insurance, which allows policyholders to modify premiums and death benefits as their financial situations or needs change. This adaptability can be an attractive feature for those looking for a bit more flexibility in managing their insurance needs.
Benefits of Variable Survivorship Life Insurance
1. Investment Potential
Policyholders have the opportunity to invest premium payments into various accounts. This investment component can lead to higher returns than standard whole life insurance policies, depending on market conditions. However, it's essential to remember that the associated risks are also higher—meaning returns can fluctuate, and there is a possibility of loss.
2. Cost-Effective
One of the significant advantages of variable survivorship life insurance is its cost effectiveness. Generally, premiums for survivorship policies are less than the sum of individual policies due to the longer expected time until the insurer has to pay out benefits. This cost-saving aspect can make it a more attractive financial option for couples.
3. Simplified Underwriting
Qualifying for variable survivorship life insurance is typically easier compared to individual life insurance policies. Insurers are primarily concerned with the joint life expectancy of both individuals, leading to more lenient underwriting standards. As a result, individuals with varying health statuses may find it easier to secure coverage.
4. Estate Building and Preservation
Survivorship policies offer a dual function: they can help grow an estate by providing a death benefit that serves as financial protection for beneficiaries. This payout can ensure that heirs receive funds even if the policyholder depletes their estate during their lifetime.
Moreover, these policies assist in preserving the estate by providing liquidity to cover estate taxes and other debts upon death, ensuring that assets can be transferred to heirs without substantial financial hardship.
Conclusion
Variable survivorship life insurance is an essential option for couples looking for an innovative solution that combines life insurance protection with investment opportunities. Its cost-effective nature, easier qualification process, and ability to build and preserve an estate present numerous advantages. However, potential policyholders should carefully consider their options, assess their risk tolerance, and seek professional advice to ensure that this type of insurance aligns with their financial objectives and estate planning needs.
Before making any decisions, it's critical to understand the intricacies involved with variable survivorship life insurance, as well as the long-term implications for your financial wellness and that of your beneficiaries.