Survivorship Life Insurance: What It Is, and What to Do With One You No Longer Need

Years ago, often on the advice of an estate attorney, you and your spouse bought a single life insurance policy that covers both of you and pays when the second of you dies. It was a sensible plan at the time. The premiums may be large, the death benefit larger, and the paperwork has probably sat in a trust file ever since.

A lot has changed since then, particularly in the tax law these policies were built around. This guide explains what survivorship life insurance is, why couples buy it, what happens at the first death, why many couples no longer need theirs, and what your options are if that is you. If you are not sure whether your policy still has a job to do, our guide to whether you still need your life insurance policy is a useful companion.

What Is Survivorship Life Insurance?

Survivorship life insurance is a single policy that covers two people, usually a married couple, and pays its death benefit only after both of them have died. It is also called second to die insurance, or joint and survivor insurance.

The New York Department of Financial Services describes it as coverage for two or more persons with the death benefit payable at the death of the last of the insureds. It also notes the trade-off: premiums are significantly lower than for policies that insure only one person, because the probability of having to pay a claim is lower.

Nothing is paid at the first death. This is the defining feature, and the one that surprises families most often. A related product, joint first to die insurance, pays at the first death instead. It is far less common.

Most are permanent policies. Survivorship coverage is usually whole life or universal life, very often guaranteed universal life, because it is meant to last until both insureds have died. Our article on what a GUL policy is worth covers how that design affects value.

Why Do Couples Buy Second to Die Life Insurance?

The most common reason is federal estate tax, and the timing explains why.

The tax bill usually arrives at the second death. According to the IRS, property that passes to a surviving spouse is eligible for the marital deduction. So when the first spouse dies, there is usually no federal estate tax. When the second spouse dies, there is no spouse left to pass to, and any tax falls due. A survivorship policy pays at exactly that moment.

It protects assets that are hard to sell quickly. A family business, a farm, a rental portfolio or a vacation home cannot always be turned into cash on the tax deadline. The policy gives the heirs cash, so they are not forced to sell.

There are other reasons too. Some couples use the policy to leave a larger inheritance than they could otherwise afford, to fund a gift to charity, to provide for a child with special needs after both parents are gone, or to even out an inheritance when one child takes over the family business.

It is usually owned by a trust. Many survivorship policies are held in an irrevocable life insurance trust, so the proceeds sit outside the taxable estate. That matters later, because it means the trustee, not the couple, owns the policy.

What Happens to a Survivorship Policy When One Spouse Dies?

Nothing is paid. The policy stays in force on the surviving spouse, and premiums usually have to keep being paid until the second death, unless the policy was fully paid up.

It becomes a policy on one life. From here on, everything about the policy depends on the surviving spouse. For many families that is the first time anyone has looked at the policy in years.

Ask for an in-force illustration. The carrier will provide one on request. It shows whether the policy is still on track to stay in force on the current premium, and what it would take to keep it there. Universal life policies in particular can drift off track when interest credits fall short of the original projection.

It is a natural moment to ask whether the policy is still needed. The first death often changes the estate plan, the household budget and the family's priorities. The policy deserves the same review.

Why Do So Many Couples No Longer Need Their Survivorship Policy?

Because the estate tax problem many of them were bought to solve has shrunk dramatically.

The exemption has nearly tripled. According to the IRS, the basic exclusion amount, the value an estate can pass free of federal estate tax, was $5,490,000 for a death in 2017. For a death in 2026 it is $15,000,000.

Couples can use both exemptions. Since 2011, the IRS has allowed a surviving spouse to elect to receive the deceased spouse's unused exemption, known as portability. A married couple can generally shelter up to twice the individual amount.

So the tax bill may simply be gone. A couple who bought a survivorship policy ten or fifteen years ago to cover a projected federal estate tax bill may now owe no federal estate tax at all. They are still paying premiums on insurance for a bill that will never arrive.

Other reasons the need fades. The business has been sold or already passed to the next generation. The children are financially secure. The charity gift was made another way. Or the premiums have simply become a strain on retirement income.

Estate tax rules are complex, they change, and some states levy their own estate tax at much lower thresholds than the federal one. This is educational information rather than tax advice. Review your situation with your estate planning attorney or tax adviser before acting on any of it.

Can You Sell a Survivorship Life Insurance Policy?

Often, yes. A survivorship policy can be sold through a life settlement, a regulated transaction in most states. A licensed buyer pays the owner a lump sum, takes over all future premiums, and later collects the death benefit. The NAIC consumer guide to life settlements explains the process in neutral terms, and our overview of what a life settlement is covers the basics.

Buyers look at both lives. A buyer prices any policy on how long they expect to wait for the payout. While both insureds are alive, that wait runs until the second death, which is usually longer than on a comparable single-life policy. Our explainer on how life settlement payouts are calculated walks through why that matters.

That shapes which policies draw offers. In general, survivorship policies draw stronger interest when both insureds are older or one has had a change in health. Once one spouse has died, the policy is priced on the survivor alone.

If a trust owns it, the trustee sells it. The trustee signs as the owner, the sale has to be permitted by the trust document, and the proceeds go to the trust to be handled under its terms. Bring the trustee and your estate attorney in early.

An offer is not guaranteed. Some policies receive none, and our guide to what disqualifies a policy from a life settlement covers the common reasons. A life settlement broker can take the policy to several buyers at once, which is the best way to find out what the market will actually pay.

What Should You Do With a Survivorship Policy You No Longer Need?

Start by confirming that you really no longer need it. That is a question for your estate planning attorney as much as for you.

Keep it if the original job still exists. If your estate could still owe federal or state estate tax, if it is mostly a business, farm or real estate that would have to be sold to pay that tax, or if the policy provides for someone who will depend on it after you are both gone, the policy may be doing exactly what it was bought to do. In that case, keeping it is the right answer.

If the need has gone, you have four choices.

Keep paying anyway. The death benefit still goes to your heirs or the trust. If the premiums are comfortable, that can be a reasonable way to leave an inheritance.

Reduce the death benefit. Many carriers will lower the face amount, and with it the premium. It is worth asking what that would look like.

Surrender it. The carrier pays the cash surrender value and the policy ends. On guaranteed universal life that value is often small or nothing. Our explainer on cash surrender value covers how it is calculated.

Sell it. A life settlement may pay more than the surrender value, and the buyer takes over the premiums. Our comparison of selling against surrendering shows how to weigh the two, and our page on selling a whole or universal life policy covers how the process works.

Letting the policy lapse is the one choice that returns nothing at all. Whatever you decide, compare every option first, and involve your attorney and the trustee if the policy sits in a trust. Our guide to the tax implications of a life settlement covers how a sale is taxed.