Second to Die or Survivor Life insurance policies are mainly used in the area of Estate Planning and Wealth Transfer. In the area of Estate Planning the policy is used to create liquidity to those that have exposure to the Federal and/or State Estate Tax. However with the recent changes made by congress, the Federal Lifetime Exclusion before being subject to this tax is $5.45 Million Dollars in 2016. A married couple with properly drafted Estate Planning documents can pass on $10.9 Million dollars of assets in 2016 to their children without an Federal Estate Tax. Each State has different rules regarding the Lifetime Exclusion against the tax, these rules should be reviewed in order to be sure there is no additional tax liability to your state of residence.
In addition, with the Unlimited Marital Deduction for US Citizens, the tax is not due for married couples until the second spouse’s death. When the tax was eliminated between spouses, there was no longer any need for life insurance coverage on the first death of a spouse to pay Estate Taxes. Therefore companies developed the ‘Second-to-Die’ product because that is when the Federal Estate Tax is now due, when you pass assets to your children or heirs. Therefore this product is perfect because that is what it is designed to do, pay benefits at the second death. Therefore the pricing for this product is discounted accordingly – verses traditional individual insurance.
We are also seeing this product used as a safe ‘money on money’ investment return, because the internal rate of return is of course sky high in early years. But remains above 5% for many years – with most carriers 30 years or more. With the current yield of fixed assets at all time lows, a tax free death benefit with a guaranteed internal rate of return in excess of 5% is very attractive!
Regarding Wealth Transfer, a Second to Die policy can be an excellent hedge against ordinary income taxes due on large Retirement Plan balances at death, where the taxes have not yet been paid. This is a highly efficient way to protect your heirs from the burden of inheriting your Retirement plan and the tax bill to go along with it!
In addition, a Second to Die policy is sometimes used in a two income household with children. Especially when each spouses individual income is sufficient to maintain their families standard of living in tact, however if a simultaneous death occurred between both spouses coverage would be needed for the children. Second to Die policies can also provide a wide range of special planning solutions – such as Charitable Giving and providing for a Children with special needs.
Here at Kelley Insurance & Financial we are independent brokers working for you, not insurance companies. We have relationships with over 50 insurance carriers and can design a plan that will fit your needs and be most competitive for you and your family. Please contact our office, or request a quote above in order to secure your families future.