Second-to-die insurance

Second-to-die insurance

Insurance policy that, on the death of the spouse dying last, pays a death benefit to the heirs that is designed to cover estate taxes.

Second-to-Die Insurance

An insurance policy that covers a married couple and pays the death benefit on the death of the second spouse. Generally speaking, the death benefit is intended to cover the estate tax. Because the second spouse does not owe the estate tax upon the death of the first spouse, second to die insurance helps the heirs of the married couple rather than either the husband or the wife. It is also called survivorship life insurance or dual-life insurance.
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A profit-sharing plan (PSP) could purchase second-to-die insurance.
Also, the IRA Conversion Plan provides a program to increase the after-tax size of an inheritance by using distributions for the purchase of life insurance inside an irrevocable trust; a Spousal Lifetime Support provides for needs of a surviving spouse through second-to-die insurance; a Flexible Irrevocable Trust covers estate-tax liquidity needs; and a Standby Trust addresses the uncertainties of the estate-tax phaseout by allowing an insured couple to put off placing a survivorship policy into an irrevocable life insurance trust until after the first spouse's death.
In Letter Ruling 9745019, this rationale was extended to a properly structured second-to-die insurance policy.
Interest Deduction Disallowance for Second-to-Die Insurance. The Taxpayer Relief Act of 1997 imposed interest deduction disallowances for split-dollar plans utilizing second-to-die insurance.
Premium payments for the second-to-die insurance should come from income generated by the family partnership.
For example, second-to-die insurance is basically a permanent product.
Married couples often buy second-to-die insurance for the trust, McDonald said.
Applicants often object to the cost of second-to-die insurance. To lower the cost, the agent will include term insurance in the coverage package.
A better solution may be to purchase survivorship or second-to-die insurance, where the proceeds are paid when the second spouse dies.
During the last few years a new type of insurance product, survivorship life insurance (SLI) or second-to-die insurance, has become an important tool for the estate planner.
Survivorship Life: Also called second-to-die insurance, survivorship life insurance covers the lives of two people and pays benefits only after both people have died.
Lee Slavutin, a principal of Stern Slavutin 2, Inc., New York, says this private split-dollar technique is most tax-efficient when funded with a second-to-die insurance policy.