Variable Survivorship Life Insurance (VSL) is a type of life insurance policy designed to cover two individuals, typically spouses, under a single policy. It pays out a death benefit only after both insured individuals have passed away. Here are some key features and considerations regarding Variable Survivorship Life Insurance:
- Survivorship Feature:
- VSL policies are also known as “second-to-die” or “survivorship” policies because they insure the lives of two people, with the death benefit payable upon the death of the second insured.
- Cash Value Component:
- Similar to variable life insurance, VSL policies have a cash value component. The cash value can be invested in a variety of sub-accounts, which are similar to mutual funds. The policyholder may have some control over the allocation of the cash value among these investment options.
- Investment Risks:
- The cash value of VSL policies is subject to market fluctuations, and the policyholder bears the investment risks. The performance of the underlying investments can impact the cash value and, consequently, the death benefit.
- Estate Planning:
- VSL is often used as a tool for estate planning. The death benefit is typically paid out to beneficiaries upon the death of the second insured, providing liquidity to cover estate taxes or other financial obligations.
- Premium Payments:
- Premiums for VSL policies are often lower than those for individual life insurance policies covering each person separately. This can be advantageous for couples seeking a cost-effective way to provide for their heirs or cover estate taxes.
- Tax Advantages:
- The death benefit is generally paid out income-tax-free, providing potential tax advantages for beneficiaries. However, tax laws can change, so it’s essential to stay informed about the current regulations.
- Flexibility:
- VSL policies can offer flexibility in terms of premium payments and death benefit options. Policyholders may have the ability to adjust their premiums and coverage based on changing needs.
- Considerations for Wealth Transfer:
- VSL can be part of a broader strategy for transferring wealth to the next generation, especially in situations where estate taxes could be a concern.
It’s important to note that VSL policies may not be suitable for everyone, and individuals should carefully assess their financial goals and needs before purchasing such policies. Consulting with a financial advisor is advisable to determine whether a Variable Survivorship Life Insurance policy aligns with your overall financial plan. Additionally, policyholders should regularly review their policies to ensure they remain aligned with their objectives.