How A Survival Life Policy Can Help Protect Your Interests
Survivorship life policy, also referred to as secondary life policy, is an extremely useful kind of insurance which insures two individuals instead of just one. Even though they can be limited term insurance policies, most life policies are long-term permanent life policies, which basically last your whole lifetime and frequently come with a savings element called… well, the cash value account. In other words, this policy is designed with the dual goals of protecting the cash value account from gradually losing value and creating a tax-deferred interest stream for the named beneficiary or beneficiaries.
A variable life policy, as its name implies, combines a policy’s variable life elements with the cash value element. The main feature of a variable life policy is that the insured may choose to invest the cash value account either passively or actively. So, you can potentially create a situation where the account grows over time, even while the policy is in force. As such, when the insured dies, your beneficiaries will receive the lump sum, or “gift”, equivalent to the amount invested in the account. Since the premiums of a variable life policy are variable, so too are the rates of return and, if you choose to use your cash value account to invest, how much interest is generated.
It should be noted that this form of insurance is rarely used by families with good health. Usually, a single individual will select this form of policy in order to give their family a tax deferred growth option in the event of their untimely death. For many years, people in this situation were able to benefit from a relatively passive process of investment, while at the same time maintaining a good health status. This was, of course, provided that they paid appropriate taxes on these accounts and had a substantial amount of life coverage.
The reason for this is that the insurance industry has always viewed a single person as the most likely candidate for a policyholder’s estate if that person passed away without leaving a spouse, children, or parents in place. As such, the insurance industry has always treated this type of situation as the most expensive way to insure an estate, as opposed to a two family policy style. The problem with this is that two policies often times provide less value than a single policy. Thus, it is almost never cost-effective to purchase two separate policies.
The underwriting process that most variable survivorship life policy companies will go through is called the “qualification process.” In short, this involves looking at the health and death histories of the people filing for coverage. While it is obvious that people with good health and histories of stable life will most likely be able to get coverage, it is equally important for the underwriter to make sure that young, healthy people can also be found to be able to benefit from the policy. There are several different ways that this can occur. Some of these include:
* Housing issues: Many people who have special needs live in extremely expensive housing that can cost thousands upon thousands of dollars per month in rent. Often times, these individuals do not have access to other important necessities such as food. While some single-insurance beneficiaries may qualify for lower cost housing insurance through their existing life policy, many of these individuals may not be able to afford to meet the costs of paying their rent each month. Single-insurance beneficiaries should also look into other options such as rent payments being covered by the new single-insurance policy. Additionally, a variable life policy may not be the best choice when dealing with housing concerns, as the policy may only be written for a specific amount of time. Thus, it is important to keep this in mind when looking at special needs policies.
* Estate planning: Estate planning is an important part of any estate. Single-insurance beneficiaries should look into whether they can get special needs funds from their existing life policy to use as a means of protecting their loved ones after their death. Most policies will give the beneficiary the ability to set aside money for their own use upon the death of the insured. However, couples who may not already be working together should consider using the proceeds of their policy to help with estate planning.
* Estate taxes: The value of a survivorship life policy can vary greatly depending on the state in which the policy is filed. The value of the death benefit and the cash value of the premium can vary greatly, as can the benefit and premiums of the entire policy. Because of this, it is important for couples who are getting married or who are getting divorced to make sure that they select a traditional life policy to protect the interests of both the couple and their individual children. This policy can provide the means to protect the estate and the financial future of all beneficiaries.