How does a second-to-die life insurance policy function?

How does a second-to-die life insurance policy function?

• A. It pays benefits upon the first death only
• B. It covers two lives and pays upon the first death
• C. It pays the death benefit upon the second death
• D. It only insures one life at a time

Answer: (C)

A second-to-die life insurance policy, also known as a survivorship life insurance policy, is designed to cover two individuals, typically spouses, and its key feature is that it pays out the death benefit only after the second insured individual passes away. This approach allows for various financial planning strategies, such as estate planning, as it can help beneficiaries cover taxes or support financial needs after both insured individuals have died. The primary purpose of a second-to-die policy is often to provide financial security for heirs, ensuring that funds are available to cover expenses that may arise upon the loss of both insured parties, such as inheritance taxes or settling estate costs. The fact that the benefit is triggered only after the second death contributes to generally lower premiums compared to policies that pay out upon the first death, as the insurance company anticipates a longer time frame before a claim is made.

A second-to-die life insurance policy, also known as a survivorship life insurance policy, is designed to cover two individuals, typically spouses, and its key feature is that it pays out the death benefit only after the second insured individual passes away. This approach allows for various financial planning strategies, such as estate planning, as it can help beneficiaries cover taxes or support financial needs after both insured individuals have died.

The primary purpose of a second-to-die policy is often to provide financial security for heirs, ensuring that funds are available to cover expenses that may arise upon the loss of both insured parties, such as inheritance taxes or settling estate costs. The fact that the benefit is triggered only after the second death contributes to generally lower premiums compared to policies that pay out upon the first death, as the insurance company anticipates a longer time frame before a claim is made.