Survivorship life insurance is primarily used for what purpose?

Survivorship life insurance, also known as second-to-die insurance, is specifically designed to pay out a death benefit after both insured individuals have passed away. This feature makes it particularly useful in estate planning, as it allows families to cover estate taxes that may arise upon the death of a higher-earning spouse or both spouses. By providing liquidity to the estate, the policy ensures that beneficiaries can settle any estate taxes without having to sell off assets, which could be critical for maintaining the financial integrity of an estate.

The focus on estate taxes reflects a common financial concern for individuals with substantial assets, who want to ensure that their heirs are not burdened by these costs. Moreover, as many estate tax regulations are structured to apply at the time of death, having a survivorship policy in place gives policyholders the peace of mind that there will be sufficient funds available at the time they are needed, thus facilitating smoother estate transitions.

This aligns with the purpose of survivorship life insurance, distinguishing it from other types of insurance, such as those intended for immediate income to beneficiaries, retirement funding, or specific education costs, which do not primarily address the complexities of estate management and taxation.