Why Consider a ‘Second-to-Die’ Policy : Action Financial Strategies LLC | New Holstein & Green Bay, WI

Why Consider a ‘Second-to-Die’ Policy

In my 34+ years of providing financial services, one of our strategic plans to pass wealth down is the use of life insurance. I know that shouldn’t be a surprise to many of you. One dollar buys hundreds of dollars of death benefits, so it’s very leverageable. Also, life insurance proceeds, if structured correctly, are payable totally tax-free to the named beneficiaries, and could be unencumbered by any creditor. It can be a wonderful tool to create legacy estate equalization. For example, if one child inherits a business, the other child inherits cash. In another situation, it could also be used to create liquidity to pay taxes to the federal government and keep the entire estate intact, such as land and business and buildings for heirs.

One particular policy that has been used and designed by the insurance industry for these particular types of planning is called a Second-To-Die Policy. It’s designed for couples who want to share a life insurance policy with specific beneficiaries, such as children and grandchildren. The life insurance company only makes a payout to the beneficiaries after the last of the survivors dies. When we explore Second-To-Die Life Insurance, it becomes a very attractive planning tool. Insuring two lives in one policy is usually much more inexpensive than one life on a policy. Obviously, due to the fact that it pays at the second death, the mortality expense is spread over two lives. In addition, many of my senior clients find that by creating this specific policy and putting it in a protective trust, such as an irrevocable trust, guarantees a legacy for their heirs, no matter what happens to their estate, such as if they became disabled and need long-term care protection, and they have some of their estate consumed by costs associated with that care. A life insurance policy in an irrevocable trust over a period of time could avoid all of that.

So while Second-To-Die Life Insurance is more affordable, it is also oftentimes easier to qualify for because even if one person is not that healthy, as long as one of the two are healthy, the life insurance usually can be placed. It’s a tremendous estate planning tool. It’s very customizable. So when choosing a policy, you can really work with a company that really provides for your particular situation.

Some drawbacks, of course, could be if the people on the life insurance policy divorce. Usually, there’s plan provisions that cause for that policy to be separated, but it can get sticky. Also, final payouts to the heirs may take some time for the second person to die. Still the bottom line is, life insurance can be a really helpful tool to protect the interest of your heirs.

If you are in a situation where your spouse won’t need a death benefit to make ends meet, the Second-To-Die Policy is a tremendous tool; a relatively affordable way to provide this tax-free environment for heirs. It also gives you the permission slip to spend down other assets that you normally would be thinking you’d want to leave to heirs.

Finding the right contract is really important. You need to ask a lot of questions and clearly identify your goals. You should check it out with your planner, as its an option worth discussing. Lastly, the cash that accumulates inside these policies could ultimately still be used by the people setting up the contract and accessed on a tax-free or tax-favored basis. These are worth exploring, and we’d love to help you with that discussion.

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Brian Ruh Owner, Financial Adviser

Loans against your life insurance policy accrue interest and decrease the death benefit and available cash surrender value by the amount of the outstanding loan and interest. Accessing cash value will reduce the available cash surrender value and death benefit.
This material is for general informational purposes only and was produced by Action Financial Strategies, LLC.