Legal Definitions - survivorship policy

A survivorship policy, often referred to as a "second-to-die" life insurance policy, is a type of life insurance that covers two or more individuals but only pays out the death benefit after the last insured person dies. Unlike traditional life insurance that pays upon the death of one individual, a survivorship policy is specifically designed to provide funds when all insured parties have passed away. It is commonly used in estate planning, business succession, and situations where financial resources are needed after the death of the last surviving member of a group.

• Example 1: Estate Tax Planning for a Married Couple

  Mr. and Mrs. Chen are a wealthy couple with substantial assets, including a family business and several properties. They are concerned about the significant estate taxes their children might face when both parents are gone, potentially forcing their children to sell valuable assets to cover the tax burden.

  To address this, they purchase a survivorship policy, naming their children as beneficiaries. The policy's death benefit is calculated to be large enough to cover the estimated estate taxes. Since the policy only pays out after both Mr. and Mrs. Chen have died, the funds become available precisely when their estate needs them to pay taxes, allowing their children to inherit the assets intact without financial strain.

• Example 2: Funding a Charitable Legacy for Business Partners

  Eleanor and Robert are co-founders of a successful technology startup. They share a strong philanthropic vision and wish to establish a substantial charitable foundation in their names after they are both gone, funded by a portion of their business's eventual value.

  They decide to purchase a survivorship policy, naming the future charitable foundation as the beneficiary. The policy's death benefit will only be paid out after both Eleanor and Robert have died. This ensures that a significant sum of money becomes available to the foundation at the appropriate time, providing the initial capital needed to launch and sustain their charitable endeavors, fulfilling their shared legacy without impacting their individual estates during their lifetimes.

• Example 3: Long-Term Care for a Special Needs Child

  David and Sarah have a daughter, Lily, who has severe developmental disabilities and will require lifelong care and financial support. They want to ensure that Lily's extensive care needs are fully funded even after both of them are no longer alive to provide for her directly.

  David and Sarah purchase a survivorship policy, naming a special needs trust established for Lily's benefit as the beneficiary. The policy's death benefit will only be paid out after both David and Sarah have died. This ensures that a substantial sum of money becomes available to the trust at the precise time when both parents are gone, providing the necessary funds to continue Lily's care, therapy, and living expenses for the remainder of her life, without relying on the death of just one parent.