Survivorship life insurance: Secure your financial legacy together

After spending your life caring for your family and pursuing your goals, you may want that legacy to continue long after you're gone. Survivorship life insurance is one way to help ensure what you leave behind will reflect the life you lived in a meaningful way, all while giving your loved ones the means to move on with confidence.

In this article, we'll discuss how survivorship life insurance works and how it helps in the estate planning process.

Survivorship life insurance, also known as second-to-die life insurance, is a type of contract that insures two lives—yours and your spouse's or yours and a business partner's. It pays out a death benefit only when both covered individuals die. It's typically a permanent insurance contract, so the insureds won't have to worry about outliving the coverage because it does not expire as long as the premiums are kept up to date.

This joint life insurance contract works similarly to individual insurance except that both parties complete an application. If a medical exam is required, each person needs to pass the exam. The coverage and premium amounts are based on both applicants' age and health. When both parties die, the beneficiaries receive the generally income-tax-free death benefit.¹

If purchased as a universal life insurance or whole life insurance contract, a survivorship policy can accumulate cash value that either of the insureds can tap into. Any withdrawals would decrease the death benefit paid out to the beneficiaries if not paid back.²

Survivorship life insurance can be a powerful tool for families looking to reduce the tax burden on beneficiaries — particularly when qualified retirement accounts are part of the picture.

Traditional IRAs and 401(k)s are funded with pre-tax dollars, meaning beneficiaries typically owe income tax on withdrawals. The top federal income tax rate is 37% — a rate made permanent by the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025.

Because life insurance death benefits are generally not subject to income tax, a survivorship policy can help offset this burden. One strategy: take distributions from a qualified retirement account now, pay the taxes, and use the remaining funds to purchase a survivorship policy. This can leave beneficiaries with a significantly lower tax obligation and a more predictable inheritance.

Always consult a financial advisor and tax professional before making withdrawals from a qualified retirement account.

Survivorship life insurance is commonly used to help heirs cover estate taxes — but the policy's death benefit can itself be counted as part of your estate, potentially pushing the total above the federal exemption threshold.

The good news: that threshold just got much higher. Starting January 1, 2026, the estate, gift, and generation-skipping transfer tax exemption rose to $15 million per individual ($30 million for married couples), with no sunset provision and annual inflation adjustments beginning in 2027.

For estates that still exceed the exemption, an irrevocable life insurance trust (ILIT) is worth considering. An ILIT owns the survivorship policy as a separate legal entity, keeping the death benefit out of your taxable estate. You can fund an ILIT with a new or existing policy — though transferring an existing policy triggers a three-year "look-back rule" before it's excluded from your estate. With a new policy, only the premium payments are subject to the look-back period, not the death benefit itself. An ILIT also allows you to set specific terms for how and when funds are distributed, offering an added layer of legacy control.

A survivorship life insurance contract's death benefit can be used to continue care for special needs dependents to:

• Help cover the costs of a replacement caregiver
• Supplement income for a dependent to remain in a comfortable living situation

Co-owners of a business may use a survivorship life insurance contract as part of a business succession plan. The death benefit can help:

• Cover the costs of a transfer of ownership
• Pay operating expenses while ownership is transferred
• Offset costs associated with forced liquidation
• Keep the business open and operational without interruption

Like every insurance contract, survivorship life insurance has advantages and drawbacks worth considering before you decide if it's best for you and your loved ones.

You can't always control what happens after you're gone, but you can do your best to give your family and the other crucial people in your life what they need to continue on. A survivorship life insurance contract can help continue your legacy of caring for what's important to you. Your financial advisor can help you gauge if this type of coverage makes sense for your goals.