Variable Survivorship Life Insurance, also known as Second-to-Die Variable Life Insurance, is a type of variable life insurance policy that covers two individuals simultaneously. The death benefit is payable only after both insured individuals have passed away. This arrangement is primarily used for estate planning and wealth transfer purposes.
Key Features of Variable Survivorship Life Insurance
Policy Structure
Variable Survivorship Life Insurance policies are structured to provide flexibility and cash value accumulation. The premiums paid are typically invested in a variety of sub-accounts, similar to mutual funds, which can include stocks, bonds, and other securities. The performance of these sub-accounts directly impacts the policy’s cash value and death benefit.
Premium Payments
Policyholders have the option to pay premiums either through regular, scheduled payments or as a lump sum. The policy’s cash value can fluctuate based on the performance of the chosen investment options, which can affect the premiums required to sustain the policy over time.
Death Benefit
The death benefit in a Variable Survivorship Life Insurance policy is paid out tax-free to the beneficiaries upon the death of the second insured individual. This can be used to cover estate taxes, debts, or to provide financial security for heirs.
Benefits of Variable Survivorship Life Insurance
Estate Planning
Variable Survivorship Life Insurance is a powerful tool for estate planning. It provides liquidity to pay estate taxes and other expenses, ensuring that the estate can be passed on to heirs without being diminished by tax obligations.
Investment Opportunities
With its variable nature, policyholders have the opportunity to invest in a range of sub-accounts, which can potentially lead to higher cash value growth compared to traditional life insurance policies.
Flexibility
The policy offers flexibility in terms of premium payments and investment choices. Policyholders can adjust their investment strategies based on their financial goals and market conditions.
Considerations and Risks
Market Volatility
The cash value and death benefit of a Variable Survivorship Life Insurance policy can fluctuate based on market performance. Poor investment performance can lower the policy’s cash value and potentially require higher premium payments to keep the policy in force.
Complexity
These policies can be complex and may require a thorough understanding of investment principles and market dynamics. Professional financial advice is often recommended.
Cost
Variable Survivorship Life Insurance policies can be more expensive than traditional life insurance due to the investment component and the need for constant management and monitoring.
Historical Context
Variable life insurance emerged in the 1970s, offering a new way for policyholders to build cash value through investments. The concept of survivorship life insurance, also known as second-to-die insurance, followed, catering to the needs of estate planning and wealth transfer. Combining these two concepts created Variable Survivorship Life Insurance, providing both investment opportunities and estate planning benefits.
Applicability
Variable Survivorship Life Insurance is particularly useful for high-net-worth individuals looking to manage their estate taxes and provide for their heirs. It is also suitable for business partners who want to ensure a smooth succession process.
Related Terms
- Estate Taxes: Taxes imposed on the transfer of the estate of a deceased person.
- Cash Value: The amount of money inside a permanent life insurance policy that can be accessed through loans or withdrawals.
- Sub-Accounts: Investment options within a variable life insurance policy, similar to mutual funds.
FAQs
What happens if one of the insured individuals dies?
The death benefit is only paid after both insured individuals have passed away. The policy continues to be in effect after the first death.
Can I change the investment options in my policy?
Yes, most Variable Survivorship Life Insurance policies allow policyholders to adjust their investment choices within the available sub-accounts.
Is the death benefit taxable?
The death benefit is generally paid out tax-free to the beneficiaries.
References
- “Estate Planning with Life Insurance” by J.K. Lasser’s Your Income Tax 2024
- “Variable Life Insurance and Annuities: National Underwriter” by Donald D. Dunlap
Summary
Variable Survivorship Life Insurance combines life coverage for two individuals with investment opportunities, making it a versatile tool for estate planning and wealth transfer. While offering significant benefits, it requires a deep understanding of investment risks and market dynamics. Professional advice is recommended to maximize the policy’s potential and align it with overall financial goals.
