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Tools High Income Earners Use to Pass Down Wealth

Passing wealth down to future generations is critical for most high-income earners. One of the most popular methods is a second-to-die insurance policy. The policy is ideal for couples who want to share life insurance with specific beneficiaries—such as grandchildren and children.

Second-to-die life insurance can help pass wealth through the generations and offer estate planning advantages. However, only 33% of Americans have an estate plan for their wealth. As a result, millions of Americans may struggle to pass wealth after they pass away to future generations.

In this article, we’ll discuss why a second-to-die insurance policy is excellent for passing down wealth.

What Is a Second-To-Die Insurance Policy?

A second-to-die policy ensures the beneficiaries receive the death benefit after the second policyholder dies. The primary goal of a second-to-die insurance policy is to limit the tax burden on a surviving partner. Rather than paying federal estate taxes after the first partner dies, the surviving partner can avoid exhausting their reserves to cover estate tax.

Second-to-die insurance policies have similarities with joint insurance policies, which typically come with a first-to-die provision. As a result, joint life insurance policies pay the surviving partner after the first person passes away. In contrast, some insurance policies offer second-to-die contracts, whereby future generations receive the benefits after the second person dies.

The Benefits of a Second-To-Die Life Insurance Policy

Here are some of the main benefits of using a second-to-die life insurance policy for your estate planning:

  • Affordability - In many cases, the premium payments of a second-to-die life insurance policy are less than two individual premiums for policyholders.

  • Easy to qualify - When you use standard life insurance policies, poor health can make it problematic to purchase the policy. However, it’s easier to qualify for a second-to-die life insurance policy even if one partner has poor health.

  • It’s an estate planning tool - It’s always essential to use estate planning tools to pass down wealth, and a second-to-die life insurance policy is a superb one. It can help with tax planning and issue a death benefit to your beneficiaries.

  • It’s customizable - You can work with your insurance company to customize a second-to-die insurance policy that benefits you.

The Downsides of a Second-To-Die Life Insurance Policy

As with any insurance policy, there are downsides to using a second-to-die insurance policy. Here are some of the potential pitfalls:

  • No benefits for the surviving partner - If the policyholders have removed one or more people as beneficiaries on the policy and continued to pay premiums—the surviving partner won’t obtain any death benefit.

  • The final payout could be decades later - If the surviving partner lives decades longer after the first partner dies, the beneficiaries will be waiting even longer to receive the benefit.

  • Tricky situation if partners split - Many complications could arise if the couple divorces, including awkward negotiations.

Is a Second-To-Die Insurance Policy Right for You?

Sometimes, a second-to-die insurance policy might be the right choice for you. However, it’s not a wise idea if the surviving partner would financially struggle after the death of their partner. Look for other insurance and estate planning options if second-to-die policies don’t meet your financial requirements.

Final Thoughts

If you want to pass down wealth to your children and grandchildren, a second-to-die life insurance policy might benefit you. We can help you with estate planning and finding the best life insurance policy at DPH Financial Services. We will customize a plan to suit you.

Contact us to see how we can assist you.

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