Not everyone needs second to die life insurance, but it can be very beneficial in certain situations. Unlike a traditional term or whole life insurance policy, which pays benefits to a named beneficiary after the death of an insured individual, second to die life insurance actually covers two people. Benefits are paid out only after the deaths of both insured parties. This type of insurance is typically used for:

• Estate Planning: Second to die insurance can be a powerful estate planning tool for couples who expect to leave a significant estate to their heirs.

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When a client is deciding on who to name as beneficiaries of their life insurance policy, the topic of insurable interest often comes up,  Insurable Interest can be defined as:

The interest arising when one person has a reasonable expectation of benefiting from the continuance of another persons life or of suffering a loss at his or her death.  In life insurance, a person generally is considered to have an unlimited insurable interest in himself or herself.  However, a person must have an insurable interest in another person at the time of application in order to insure the others life.

From the definition above, its clear that a spouse and children would have an insurable interest in the life insurance policyholders life.  They would most probably suffer a financial loss if their spouse or parent passed away.  Sometimes a client will want to list a sibling or friend as a beneficiary and, in these situations, the insurance company will typically ask what insurable interest the proposed beneficiary has in the policyholder.  Usually, if there is no clear interest, the insurance company will question it and sometimes disallow the beneficiary designation.

I just read an interesting news story concerning beneficiaries of the life insurance policies of Susan Powell, the missing Washington woman whose husband, Josh Powell, recently killed himself and his children by setting his house on fire.  Susan Powells policy is under question for the obvious reason that she is still missing and hasnt been officially pronounced dead.  However, Josh Powells policy is under investigation because of the number and timing of changes that occurred shortly before he committed the murder-suicide.  Apparently, he made changes to his beneficiaries in late 2011, naming his siblings and father as beneficiaries rather than the trust overseen partly by his father.  Aside from the timing of the changes and all the other questions that come to mind, the question of insurable interest will certainly come up. 

According to the Salt Lake Tribune, given the number and timing of changes that occurred shortly before Powell carried out the murder/suicide, New York Life also has concerns regarding Joshua Powell’s competency at the time the beneficiary changes were made, the court filing states. It also says

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I received an advertisement email yesterday offering Instant Term Life Insurance Quotes. Being that our company, Lifeinsure.com, is in the business of marketing and selling life insurance online, I thought Id take a look at how one of our competitors was doing it.

I clicked the link on the email that said Get Instant Quote and was sent into the companys website, where it boldly states that Rates are Ready for you Right Away with no Wait. I enter my zip code, as requested, and away we go.

I am greeted by a typical web form, asking me how much life insurance I want, for what term, date of birth, height and weight, tobacco use and gender information that is needed in order to provide a life insurance quote.

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As I mentioned in Part 1 of this subject, while term life insurance is a great option for many people and purposes, there are situations for which permanent life insurance might make more sense.  To continue the list:

• To Provide Liquidity to Pay Estate Taxes:  This is one of the reasons we see most frequently.  People with large estates may be subject to estate taxes at death.  Life insurance owned by an Irrevocable Life Insurance Trust (ILIT) can escape estate taxation and provide the liquidity needed to pay those taxes.
• To Provide for Business Continuation:  Permanent life insurance can be a better solutions than term life insurance for funding a business continuation plan.  It insures the policy will be in force regardless of how long the business owner stays active in the business.
• To Maximize a Pension:  A retiree may elect to take the highest (life) payout option on his/her pension, while still protecting the surviving spouse.  Permanent life insurance is a great way to accomplish this.
• To Provide Creditor Protection:  Some states protect policy cash values from the claims of creditors.
• To Provide for Executive Benefits:  If structured properly, policy cash values can be used to fund deferred compensation retirement benefits paid to executives.  Death benefits can be used as cost recovery mechanisms for the company.

We will continue this list in our next post.  In the meantime, feel free to look at permanent life insurance quotes or term life insurance quotes.