When planning for the financial future, many couples and business partners consider joint life insurance as a way to secure their loved ones or protect shared financial interests. Among the various types of joint life insurance, the last-survivor policy stands out as a unique and often misunderstood option. In this guide, I break down how last-survivor policies work, their advantages, drawbacks, and key considerations before purchasing one.
Table of Contents
What Is a Last-Survivor Policy?
A last-survivor policy, also called a second-to-die life insurance, is a joint life insurance policy that pays out only after both insured individuals pass away. Unlike a first-to-die policy, which pays upon the death of the first insured, this policy delays the payout until the second death occurs.
Key Features
- Dual Coverage Under One Policy: Covers two people (usually spouses or business partners).
- Single Payout: The death benefit is paid only after the second insured dies.
- Lower Premiums: Since the insurer pays later, premiums are often cheaper than individual policies.
Why Choose a Last-Survivor Policy?
Estate Planning Benefits
Many high-net-worth individuals use last-survivor policies to cover estate taxes. Under current U.S. tax laws (2025), estates exceeding $13.61 million per individual (or $27.22 million for married couples) face a 40% federal estate tax. A last-survivor policy ensures liquidity to cover these taxes without forcing heirs to sell assets.
Business Continuity
Business partners may use this policy to fund buy-sell agreements. If both partners pass away, the death benefit can help heirs transition ownership smoothly.
Cost Efficiency
Since premiums are based on joint life expectancy, they are often lower than two separate policies. The insurer calculates risk using joint mortality tables, which factor in the likelihood of both insureds surviving longer.
How Premiums and Payouts Are Calculated
Mortality Tables and Joint Life Expectancy
Actuaries use joint life expectancy to price last-survivor policies. The probability of both insureds dying within a term is lower than a single life policy, reducing risk for the insurer.
The joint probability of death in a given year can be expressed as:
q_{xy} = q_x + q_y - q_x \times q_y
Where:
- q_x = probability of the first insured (x) dying in the year
- q_y = probability of the second insured (y) dying in the year
Premium Comparison: Single vs. Joint Policy
| Policy Type | Annual Premium (Age 50) | Payout Condition |
|---|---|---|
| Single Life (Male) | $2,100 | Death of insured |
| Single Life (Female) | $1,800 | Death of insured |
| Last-Survivor (Couple) | $2,700 | Death of both |
As seen, a joint policy costs less than two individual policies combined.
Real-World Example: Estate Tax Planning
Consider a married couple with a $30 million estate. Upon the second death, the estate tax due would be:
(30,000,000 - 27,220,000) \times 0.40 = 1,112,000A last-survivor policy with a $1.5 million death benefit ensures heirs have liquidity to pay taxes without liquidating assets.
Potential Drawbacks
Delayed Payout
Since the benefit pays only after the second death, the surviving spouse gains no immediate liquidity. If the surviving partner needs funds, alternative planning is necessary.
Changing Needs
If a couple divorces, restructuring the policy can be complex. Some insurers allow policy splits, but fees may apply.
Health Underwriting
While some insurers offer relaxed underwriting for the second insured, severe health issues can still increase premiums.
Alternatives to Last-Survivor Policies
First-to-Die Policies
Pays upon the first death, useful for income replacement.
Individual Term or Whole Life Policies
More flexibility but higher combined premiums.
Final Thoughts
Last-survivor policies serve specific needs—primarily estate planning and business continuity. They offer cost advantages but require careful consideration of long-term financial goals. If you anticipate estate tax liabilities or need a structured inheritance plan, this policy might be a strategic fit.
