Yes, indeed. Also known as "survivorship life insurance," this form of insurance can save family business, farms, ranches and even families themselves.
And it can give you better return on investment for every premium dollar paid.
Because you are betting on "two lives" before the policy matures, so to speak.
Since women far outlive men, this fact is also reflected in lower premiums.
A recent article in Insurance News took up this topic in "Survivorship Life Insurance Useful for Estate Planning."
Typically, when it comes to paying estate taxes at a 40% rate on estates exceeding $10.9 million (i.e., the combined estate tax exemption currently available to properly planned marital estates), liquidity is key.
When the "estate" is an illiquid business, farm or ranch, cash money is needed to "ransom" the estate from the IRS within nine months of death.
Historically, life insurance has been the "secret sauce" to paying that ransom.
Even better when the policy has lower premiums, a larger face amount and pays out just when needed (i.e., upon the death of the "second-to-die" when any estate taxes are due).
Ergo, survivorship life is nothing short of a financial miracle to ransom an illiquid business, farm or ranch ... for pennies on the dollar.
What about the "saving even families themselves" part you alluded to earlier, Kyle? Was that a little journalistic hyperbole?
Mom and Dad have built a profitable business, farm or ranch. It is 75% of their net worth.
Their youngest son stayed behind to help run and grow it, while his older three siblings went off to seek their fortunes elsewhere.
Mom and Dad want the "sweat equity" son to inherit the business, farm or ranch.
Question: Will the siblings be resentful if they only inherit the remaining 25% and this is the end of the story?
Not only will they resent Mom and Dad, but the relationships between the youngest son and his siblings will be impacted negatively, too (understatement).
Question: What if Mom and Dad created a "wealth replacement trust" to apply for and own a survivorship life insurance policy to help "equalize" the inheritances between their four children?
Then we have a whole different and happier ending to this scenario.
Let me take it a step further.
Mom and Dad would be wise to have a family meeting with all of their children to explain their estate planning and the thought processes behind it.
In addition, they should consider inviting their estate planning attorney and life insurance professional to answer any technical questions the children may have.
Just a thought.
What "flavour" of life insurance policy should you use?
You should have a "permanent" plan for survivorship policies.
Accordingly, consider either traditional universal life or equity indexed universal life.
Universal life will likely allow the most benefit per dollar invested.
Can you say best bang for the buck?
When designed properly, it can provide for sufficiently strong guarantees without any waste by having any excess money in cash value.
Be certain to consult with an experienced life insurance professional when considering this type of planning for you and your family.
Here is today's takeaway - survivorship life insurance can provide an affordable and workable solution for many liquidity needs as part of a comprehensive estate plan.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: insurancenews.net (May 3, 2016) Survivorship Life Insurance Useful for Estate Planning