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Second-to-Die Policy

What is a Second-to-Die Policy?

A second-to-die life insurance policy is a type of joint life insurance that covers two people and pays out the death benefit when both of those individuals have died. Like individual life insurance, second-to-die insurance requires the insured to name a beneficiary or beneficiaries to receive the policy benefit.

How second-to-die life insurance works

As a type of joint life insurance, second-to-die coverage insures two people with shared assets, like business partners or spouses. The second-to-die component of the policy stipulates that the policy only pays out the death benefit when boths insureds have died. Compare that against first-to-die insurance, which pays the death benefit to the living insured when the first insured dies.

Getting both second-to-die and first-to-die life insurance requires virtually the same process as getting individual life insurance. In most cases, applying for the policy will trigger an underwriting period during which both applicants will be required to complete a questionnaire and go in for a medical exam.

If that underwriting turns up any risk-increasing factors, like a smoking habit or a serious health condition, the cost for the policy will go up. Insurers weigh the health of both applicants when deciding whether or not to issue coverage and, if so, how much to charge for it.

That potentially means that a person who was denied individual coverage as a result of a risk factor like a high-risk occupation or a health concern may be able to qualify for joint insurance when applying with a healthy, lower-risk person.

Generally, buying joint insurance is cheaper than buying two individual life insurance policies.

Second-to-die policy beneficiaries

With first-to-die insurance, there’s no need to name a beneficiary because the death benefit goes to the surviving insured.

But when you buy second-to-die insurance, you do so knowing that neither you nor the person you’re applying with will see the policy benefit. That means you need to name either a single beneficiary or multiple beneficiaries. These are people or entities that will receive the policy’s payout when you and the other insured die.

As a common example, many partners with children buy second-to-die insurance and name their children as beneficiaries. That way, when they both pass away, the children can receive the tax-protected policy payout as part of their inheritance (Minors can’t receive a death benefit directly, but it can be placed in a trust or specialized account for them).

Second-to-die insurance can also make a lot of sense if you and your partner care for someone with special needs. Leaving a sum of money behind can ensure their caregiving needs are met after you’re gone.

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