What Is Survivorship Life Insurance?

Pete Braun is a senior director of Insurance Solutions at Northwestern Mutual.

When it comes to life insurance, the right policy depends on your specific needs—and there are a lot of options to choose from. Each type helps with financial challenges, like protecting wealth you built together with your spouse. A solution for couples (or business owners) is survivorship life insurance. Here you’ll learn what it is and how it can help with estate planning or business continuity.

How survivorship life insurance helps couples with estate planning

Survivorship life insurance is designed to provide financial support to the beneficiary of a couple or business partners. It can be an excellent tool for estate planning because the death benefit is paid out when the second person dies. The structure helps protect the family's or business's assets.

Heirs receive a legacy without having to quickly liquidate assets or take out loans to cover inheritance taxes and expenses. They’re prepared to maintain the wealth intended by the deceased couple, such as taking care of the family’s vacation home. And when it’s used in a business setting, heirs have the money to fund a buy-sell agreement or hire a consultant to get the business through a leadership transition.

Beneficiaries and legacy planning

Survivorship life insurance helps you plan for the future and leave a legacy. You decide where you want to direct the money after both insured people pass away, whether that’s to people close to you or a charity.

Support for beneficiaries: Survivorship life insurance helps ensure that the couple's beneficiaries—typically children/grandchildren or business associates—get a lump-sum payment to help manage financial obligations. The death benefit usually reaches the beneficiaries tax-free, and there are no limitations on how they use the money. They could take an extended leave from work and travel the world, retire early, start a new business or buy out their deceased parents’ share in a business. Or it can be put toward estate or inheritance taxes.

For parents of children who require special care, survivorship life insurance can help ensure that their children are well supported financially. For example, a child who cannot work or live independently can rely on the funds to help with the cost of an aide. (The proceeds are sometimes used to fund a trust.) Or the payout could be used to help cover the costs of long-term care for an adult child—for example, parents who die in their 90s could pass money to an adult child in their late 60s.

Charitable giving: Survivorship life insurance can be used to make a significant charitable donation, ensuring that the couple’s philanthropic legacy lives on. For example, you could leave money that allows your favorite nonprofit to hire another staff member or upgrade a building. Or you might want to start a scholarship at your alma mater.

Benefits of survivorship life insurance

Survivorship life insurance offers several advantages beyond estate planning, making it a versatile financial tool for various situations.

Lower premiums

Survivorship life insurance is usually less expensive and has lower premiums than other comparable permanent life insurance options on an individual. (This is because the risk for the insurance provider is lower in the early years of the policy since it pays out only after both insured individuals have died.)

Cash value

As the years go by, survivorship life insurance builds cash value. You can access it for virtually any reason you want, including to supplement your income during retirement. This can be especially beneficial, as it can give you flexibility during market downturns. By relying on your cash value during down markets instead of your investments, you give those investments more time to rebound in the market, which can give them the opportunity to recoup any value lost. But keep in mind that withdrawing cash value from your life insurance policy can reduce the death benefit of your policy unless you pay it back.

Option for premium flexibility

With particular types of life insurance, called survivorship universal life and survivorship variable universal life, you get some flexibility in premiums year to year. You can talk with your financial advisor and adjust premiums and corresponding death benefits within certain limits to adapt as your finances change. 

Potential growth from market performance

If you choose survivorship variable universal life, you can invest in various subaccounts. They work similarly to mutual funds. If the market performs well, you could potentially earn even more cash value and a higher death benefit relative to another type of insurance called whole life. As with any variable product, there are investment risks, so speak to your advisor about how much risk you can take on.

Pros and cons of survivorship life insurance policies

This is an effective financial tool, but here are some considerations to talk over with a financial advisor.

• Pros: Survivorship life insurance is cost effective when compared with two separate policies covering the same people at similar amounts. It also builds cash value and can be tailored to meet specific estate planning needs. Survivorship life can be a good option for two people when one of them has a significant health issue that might make it difficult to get traditional coverage. And if it’s designed as whole life, the amount you owe will remain steady as long as you have your policy—and the policy may earn dividends.
• Cons: The surviving partner does not get a death benefit payout when the first partner dies, so it might make sense to have a secondary policy to support them. When you apply for life insurance, you typically undergo a review of your medical history called “underwriting.” Finally, survivorship life policies can be cumbersome to split when a couple divorces or legally separates.

Joint life insurance: First-to-die vs. survivorship life insurance

Joint life insurance covers two people, such as married couples, domestic partners or business partners.

• With first-to-die insurance, the money goes to the beneficiary (usually the surviving partner) when the first person passes away.
• Survivorship life insurance pays out the death benefit only after both insured individuals have passed away. For this reason, it’s sometimes called “second-to-die coverage.” The money often goes to children or grandchildren.

Consider survivorship life insurance as part of your financial strategy

Survivorship life insurance can be a powerful tool for couples and business partners who want to provide financial security for their beneficiaries. And your Northwestern Mutual financial advisor can help you find the policy that suits your situation.

Your advisor will ask deep questions and help you tailor a solution to meet your goals. They can also show you how insurance will reinforce other financial tools, like investments, as you work toward your legacy goals. By looking at your whole financial plan, your advisor can uncover opportunities and point out blind spots that might otherwise be overlooked. A comprehensive plan can help you actively work toward your life goals and preserve what you’ve built.

Dividends are not guaranteed. The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.