Key Takeaways
- Permanent life insurance with market-based cash value.
- Flexible premiums and adjustable death benefits.
- Cash value growth tied to investment performance.
What is Variable Survivorship Life Insurance?
Variable Survivorship Life Insurance is a permanent life insurance policy that covers two lives simultaneously, paying a death benefit only after both insured individuals have passed. This policy combines investment options with survivorship coverage, allowing you to allocate cash value to market-based accounts, similar to index funds, to potentially enhance growth.
By blending insurance protection with investment flexibility, it is often used for estate planning and wealth transfer strategies, giving beneficiaries a tax-advantaged payout after both insured parties die.
Key Characteristics
Variable Survivorship Life Insurance offers unique features that differentiate it from traditional policies:
- Dual Coverage: Protects two lives under one policy, paying out the death benefit upon the second death, often used to cover estate taxes or legacy planning.
- Investment-Linked Cash Value: Cash value is invested in subaccounts similar to mutual funds, with options like stock and bond funds, providing growth potential linked to market performance.
- Flexible Premiums: Allows you to adjust premiums within IRS guidelines, balancing between building cash value and maintaining coverage cost-effectively.
- Adjustable Death Benefit: Death benefit can be level or increasing, influenced by the policy's cash value and investment returns, tied to concepts like face value.
- Survivorship Structure: Ideal for couples or business partners seeking a cost-efficient way to insure two lives with a single policy.
How It Works
Premium payments cover insurance costs, administrative fees, and build cash value in investment subaccounts, which fluctuate based on market returns. You can choose allocations among options similar to those found in bond funds or equity funds, enabling control over risk and growth potential.
The policy pays a death benefit only after both insured individuals pass away, often used to fund estate taxes or provide for heirs. Cash value can be accessed via loans or withdrawals, but poor investment performance or insufficient premiums may cause the policy to lapse.
Examples and Use Cases
This type of insurance is particularly useful in specific scenarios:
- Estate Planning: Couples use survivorship policies to cover estate taxes, allowing wealth transfer with minimized tax impact.
- Business Partnerships: Partners use it to fund buy-sell agreements, ensuring smooth transitions after both parties are deceased.
- Wealth Accumulation: By investing cash value in market-based options similar to those in the best low-cost index funds, you can potentially grow the policy’s value over time.
- Legacy Funding: The death benefit can provide heirs with a lump sum, helping secure family financial goals.
Important Considerations
While Variable Survivorship Life Insurance offers growth and flexibility, it carries investment risk that can reduce cash value and death benefits. You should monitor investments regularly and be prepared to adjust premiums to avoid policy lapse.
Additionally, fees and charges, including those related to the policy’s deferred acquisition costs, may affect overall returns. This policy suits individuals comfortable with managing investment risk and seeking long-term estate planning solutions.
Final Words
Variable Survivorship Life Insurance offers flexible premiums and investment-linked cash value growth, but it carries market risk that may affect your coverage and benefits. To determine if this policy fits your financial goals, review your risk tolerance and compare different offerings with a financial advisor.
Frequently Asked Questions
Variable Survivorship Life Insurance is a type of permanent life insurance that covers two lives and combines flexible premiums, a cash value component invested in market-based options, and a death benefit paid out after both insured individuals pass away.
The cash value in Variable Survivorship Life Insurance is invested in various subaccounts such as stocks and bonds, allowing it to potentially grow more than traditional fixed-rate policies. However, since it is market-based, the cash value can also decline depending on investment performance.
Variable Survivorship Life Insurance offers flexible premiums, meaning you can adjust payments from month to month within IRS limits. You can pay more to build cash value faster or pay the minimum to keep the policy active.
The death benefit is paid out as a tax-free lump sum to beneficiaries after both insured individuals have passed away, provided the policy remains in force and has sufficient cash value to cover costs.
Because the cash value is invested in market-based subaccounts, it is subject to investment risk and market volatility. This means the cash value and potentially the death benefit can decrease if investments perform poorly, possibly requiring additional premiums to maintain coverage.
Yes, you can access the cash value through policy loans, withdrawals, or surrenders, often on a tax-deferred basis as long as the policy stays active. However, accessing cash value may reduce the death benefit and cash value available.
Variable Survivorship Life Insurance combines flexible premiums and investment control like universal life but offers higher growth potential through market-based investments. Unlike whole life, it does not guarantee fixed returns or a fixed death benefit, so there is more risk but also potential for greater cash value growth.
