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First-To-Die Life: A Policy for Unique Needs

| August 10, 2018
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Under the proper circumstances, survivorship lifeinsurance can be a cost-effective mechanism to help fund debt obligations such as estate taxes. These policies insure two people and pay a death benefit after the death of the second insured. Over the years, there has been great interest in another type of policy that also insures two people (and, in some cases, up to eight people), but unlike a survivorship life policy, the first-to-dielife insurance policy pays a death benefit upon the death of the first insured. So, how can such a policy fit within the framework of your personal financial or business affairs? 

Why First-To-Die? 

One reason to consider buying a first-to-die policy instead of two single-life policies is cost. Premiums on a first-to-die policy can be significantly less than the premiums on two separate policies covering the same two lives. In addition, on a dollar-for-dollar basis, the cash value buildup from one first-to-die policy may be similar to the cash value buildup from two separate policies. You should always review detailed policy ledgers to see if this will be true in your particular case. 

Aside from issues such as cost and cash value buildup, there are other situations where a first-to-die policy may be used to good advantage. For example, a first-to-die policy may be an ideal mechanism for a two-income couple with a significant mortgage. In this case, the policy provides insurance coverage upon the death of the first breadwinner—when it’s needed to cover mortgage debt obligations. 

The same holds true in a small closely-heldbusiness, where creditors require debt insurance, or where multiple owners may need to fund a cash buyout of a deceased partner’s ownership interest. For example, if the business has two principals, the proceeds from the first-to-die policy can be split, with one portion paid to the creditors and the balance retained by the business to indemnify against the loss of the principal’s services. In addition, policy proceeds can be made payable to the business to help provide cash for the surviving owner to purchase the deceased owner’s share of the business. 

In recent years, the first-to-die policy has come into its own as a flexible life insurance option. Frequent reviews of your insurance coverage may assist you in determining how your overall finances might benefit from the use of a first-to-die life insurance policy.  Be sure to contact your insurance agent for more information.

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