“Second-to-die insurance”, also known as joint-last-to-die (JLTD) insurance, is a specialized life insurance policy that covers two individuals, typically spouses, and disburses the death benefit solely after the demise of the second insured person. This policy is strategically crafted to bolster financial support for heirs or to address the income tax due at death (which for spouses is often deferred until the second death) and other financial obligations that may emerge following the passing of the surviving spouse. Integrating the concept of joint-last-to-die, this insurance model offers unique advantages for estate and financial planning.
Key features of second-to-die or JLTD insurance include:
Joint coverage
Diverging from individual life insurance policies that cover a single person, second-to-die insurance envelops two individuals under a singular policy framework, presenting a cost-efficient solution for couples aiming to establish a financial legacy.
Estate planning utility
This insurance variant shines in estate planning contexts. By furnishing a death benefit, it aids in ensuring that heirs are left with a tangible inheritance, facilitating the payment of income tax due at death, debt settlements, or the sustenance of the family’s lifestyle without necessitating the liquidation of other assets.
Cost-effective premiums
The premiums associated with second-to-die insurance policies are typically more affordable compared to the cumulative premiums for two distinct individual life insurance policies. This is attributed to the mitigated risk for the insurer, stemming from the delayed benefit payout until the occurrence of the second insured’s death.
Beneficiary flexibility
The policy permits the designation of children, other relatives, or charitable entities as beneficiaries, thereby offering extensive versatility in estate planning and the transfer of wealth. Life insurance paid to a named beneficiary passes outside the estate and probate (Civil Code art. 2455 in Quebec; the provincial insurance acts elsewhere); proceeds payable to the estate, or where no named beneficiary is living, go through the estate.
Cash value component
Certain second-to-die insurance policies incorporate a cash value feature that appreciates over time. This can be accessed through loans, providing financial leeway throughout the policyholders’ lives.
Simplified underwriting process
Underwriting for second-to-die insurance can occasionally exhibit more leniency compared to individual policies, particularly if one insured party presents health challenges. The underwriting process may predominantly consider the healthier individual, given that the policy’s payout is contingent upon the second individual’s death.