Personal Finance & Estate › Life & other insurance › Life insurance
Survivorship (second-to-die) life insurance
· Insurance type
Depends on youExperts differ; the right answer depends on your situation.
One life insurance policy covering two people, usually spouses, that pays only after the second one dies.
See it on the Personal Finance & Estate map →How it works
Premiums are lower than for two separate policies because the payout waits for the second death, even if one spouse is in poor health. The timing matches estate tax: the marital deduction usually defers tax until the survivor dies, and the bill is due nine months later. Who it's for: estates above the $30 million couple exemption, or illiquid estates, like a building, that heirs shouldn't be forced to sell. Main trap: if either spouse owns it, the payout itself is taxed in the estate.
Why it matters for you
Depends on you: it can give heirs cash for tax or equalize shares when one child gets the building. Ask an estate attorney whether it is still needed after the 2025 exemption increase.
Rules, limits and sources (2026)
Insurer product filings; IRC Sec. 2042 (life insurance in the estate) and Sec. 2056 (marital deduction); the 2025 tax law set the 2026 exemption at $15 million per person.
Watch out for
The 2025 law calls the higher exemption permanent, but a future Congress can change it, so whether to keep policies bought for estate tax is debated.
Connections (2)
▸Survivorship (second-to-die) life insurance is usually owned by an Irrevocable life insurance trust (ILIT)Standard practice
How they connect
If either spouse owns the policy, its payout counts in the taxable estate, where up to 40% can go to tax. Having an irrevocable life insurance trust buy and own the policy from the start keeps proceeds outside both estates. Yearly gifts to the trust, within the $19,000 per-beneficiary exclusion, pay the premiums.
When it applies
Standard estate-planning practice since the 1980s; buying the policy inside the trust avoids the three-year rule for transferred policies.
How sure?
IRC Sec. 2042 (incidents of ownership) and Sec. 2035 (three-year rule); 'Crummey' withdrawal notices trace to a 1968 appeals court case.
Watch out for
With a $15 million exemption per person, how many ILITs are still needed, and whether to unwind older ones, is debated.
▸Survivorship (second-to-die) life insurance pays out when a couple owes Federal estate & gift tax (unified; California has none)Standard practice
How they connect
Spouses can leave each other unlimited amounts tax-free, so federal estate tax usually comes due at the second death, nine months later, at 40% above the exemption. A second-to-die policy pays exactly then, giving heirs cash so they don't have to sell a building or business under pressure.
When it applies
Survivorship policies spread in the 1980s, after the 1981 tax law created the unlimited marital deduction.
How sure?
IRC Sec. 2056 (marital deduction), Sec. 2001 (40% top rate) and Sec. 6075 (nine-month deadline); the 2025 law set a $15 million per-person exemption for 2026.
Watch out for
Portability lets a survivor use a late spouse's unused exemption, so fewer couples owe tax; whether a future Congress lowers exemptions is unknown.