ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, July 29, 1996 TAG: 9607290091
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
MEMO: Clarification
The death benefit of life insurance should have been included among a
list of typical family assests in a chart on Monday's Money Page. The
chart was to help determine an individual's net worth that would be
subject to estate taxes.
PERHAPS you are a married couple who don't need life insurance benefits for each other but would like to leave an inheritance to your children or to a favorite charity.
Or maybe you are relatives who are partners in a business that would need a cash transfusion after both of you die.
Or perhaps one of you may be in somewhat poor health and can't get insurance on your own.
The insurance industry has a solution. It's called survivorship, or second-to-die, life insurance. It is a policy that covers two people but pays death benefits only after both have died.
Because the premiums for survivorship insurance are based on the combined life expectancy of two people rather than of one, the premiums are less expensive than the combined cost of buying two single-life policies totaling the same face amount.
James Halsey, an agent for Life of Virginia with Gauss & Associates in Roanoke, said 90 percent of the policies that he's handled have covered the joint lives of married couples. The balance were purchased by relatives who either live in the same household or who have a joint business venture.
The married couples, he said, buy survivorship insurance either to pay estate taxes when they are gone or simply to leave some money to their children. A few, he said, wanted to leave a joint contribution to a college or church.
F. Courtney Hoge of New York Life's Roanoke office said he sees that type of insurance used primarily to pay estate taxes.
Surviving spouses can inherit an estate without tax consequences, but the joint estate is subject to taxation when the second spouse dies. Hoge said couples want insurance that pays off then so that the estate taxes can be paid. Their children might otherwise have to sell off assets under time pressure in order to raise cash to pay the taxes.
Couples often purchase survivorship insurance when they engage in estate planning with a lawyer, Hoge said. In such a case, he said, the death benefit may be paid to a trust that benefits the children.
Hoge has never written such a policy to anyone other than a married couple, but he has seen couples purchase policies used to finance a gift to a charity.
In Roanoke, he said, survivorship insurance is a big business for many insurance agents. The policies, he said, sell very well.
He noted that the death benefit, not the cash value inside the policy, is the important goal. Those policies, therefore, gain little in cash value.
Halsey of Life of Virginia said the underwriting takes into consideration the age, sex and health status of each person, but a couple can often qualify for survivorship coverage even when one person is considered uninsurable on his or her own medical history.
Coverage begins with a minimum of $100,000 at Life of Virginia, according to Halsey, and lower charges apply to policies of $1 million and above.
Watch for an option that allows the owners to split the policy into two individual policies in case of divorce or substantial changes in estate tax laws. But be warned: Some companies may require evidence of insurability of each partner if this option is exercised.
The Institute of Certified Financial Planners said such policies are not for everyone. But the group identified a few likely candidates.
One case involves married couples who face potential estate taxes because their estate exceeds $600,000. This is especially true if a husband and wife own a business. This is why the average policy is for at least $1 million. Survivorship life insurance can provide a good way to pay the tax bill or to be sure the heirs receive an inheritance after payment of estate taxes and expenses.
Another situation is the uninsurable spouse. If that person's husband or wife is healthy, life insurance may be obtained through this option. This is especially attractive to older couples if one spouse has medical problems.
A third instance is dual wage-earner professionals with children. If one spouse dies, the other may be able to provide sufficient income. But if both die, the children might be left with few resources. Families with physically or mentally disabled children may find this type of policy useful within a trust. Two single-life policies could fill these roles, but probably at a higher cost.
The planners, however, raised two warnings.
One is that some families may find it's actually better to pay estate taxes after the first death rather than postponing them to the second death. The graduated estate-tax system could mean an overall higher bill if estate assets build up substantially over time.
The planners also noted there are many cost-effective techniques for reducing estate taxes rather than simply paying the bill with insurance.
The planners said traditional single-life policies may be more appropriate for families who need to replace income upon the first death or for blended families in which a spouse wants to leave his or her estate to children from a previous marriage rather than to the surviving spouse.
Because they cover two lives, the policies will be in force for a longer time than usual. That could affect the policy's cost, investment return and the size of the premium. It also means that people must be sure the company selling the insurance is financially solvent.
Survivorship insurance should be considered primarily in the light of an estate plan and with the advice of a planner or estate attorney.
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