What is the Role of Survivorship Life Insurance in Estate Planning?

When it comes to estate planning and legacy building, most families and their financial professionals eventually confront a common dilemma: how to preserve family wealth while minimizing tax exposure and ensuring liquidity when it’s needed most. One strategy is survivor indexed universal life insurance. This strategy can provide tax advantages, efficient wealth transfer and potential long-term cash accumulation, all in one flexible financial vehicle.

What is survivor indexed universal life?

Survivor life insurance, also known as second-to-die life insurance, insures two people, typically spouses, and pays a death benefit only after the second person (the survivor) passes away. This type of coverage is especially valuable when funds aren’t needed until the second death, such as for settling estate taxes or transferring wealth to the next generation.

When structured as an indexed universal life policy, the coverage also includes a cash value component tied to the performance of a market index, such as the S&P 500. This allows for growth potential with downside protection and flexibility in premium payments.

Unlike traditional life insurance, which is often used to replace income or cover immediate expenses upon an individual’s death, survivor IUL is designed for long-term financial strategies.

With an indexed life insurance policy, the index options are not securities; you are not investing in stocks or an index itself. Therefore, credited interest rates do not include dividends paid by companies in the indexes.

Why use a survivor policy instead of two separate policies?

There are a few key advantages:

• Cost efficiency: Because the policy pays out only after both insured individuals pass away, premiums are generally lower than for two separate permanent policies.
• Estate planning timing: Estate taxes and wealth transfer challenges often arise only after both spouses are gone. A survivorship policy aligns with this timing.
• Underwriting flexibility: If one spouse has health challenges, the combined underwriting may be more favorable than trying to insure them individually.

A strategic tool for funding multiple objectives

In addition to potential cost savings and timing advantages, survivor life insurance provides important funding for a wide range of needs, many of which go beyond basic estate taxes. For families and business owners with complex financial priorities, the death benefit from a survivor IUL policy can offer flexible, tax-efficient liquidity to support both personal and financial goals.

Here are just a few strategic uses for the proceeds of a survivor IUL policy:

• Maintain a loved one’s standard of living, particularly in multigenerational households or blended families.
• Pay both federal and state estate taxes without needing to sell valuable or illiquid assets.
• Equalize inheritance among children—especially when some are involved in a family business and others are not.
• Fund a charity or private foundation, extending the family’s philanthropic impact.
• Replace the value of assets given to charity, so heirs are not disadvantaged by philanthropic giving.
• Provide lifetime care for family members with special needs.
• Transfer business ownership interests, ensuring a smooth transition between generations.
• Provide working capital to help a business continue operations after the loss of both founders or key leaders.
• Help a business cope with the death of two key employees or decision-makers.
• Pay taxes on inherited 401(k)s and IRAs, which may otherwise create a financial burden for heirs.

These applications demonstrate how survivor IUL can be more than just a tax strategy; it’s a multi-functional funding tool that supports legacy planning, family care and business continuity.

Estate liquidity and beyond

One of the most common uses of survivor IUL is to provide liquidity to pay estate taxes. Under law, the current lifetime estate and gift tax exemption amount is only temporary. As of January 1, 2026, the current lifetime estate and gift tax exemption of $13.99 million will be cut in half and adjusted for inflation. That means individuals with estates valued at more than $7 million may be subject to federal estate taxes. As of 2025, the federal estate tax exemption is scheduled to drop significantly, potentially exposing more estates to taxes. With rates as high as 40%, families with sizable estates, particularly those holding real estate, businesses, or investment assets, face real risks of having to sell assets to meet tax obligations.

A properly structured survivorship IUL policy, especially when owned by an irrevocable life insurance trust, can keep the death benefit outside the taxable estate, making it a powerful estate liquidity tool.

Survivor IUL is particularly well-suited for married couples because the federal estate tax is generally deferred until the death of the second spouse, thanks to the unlimited marital deduction for US citizens. This means estate taxes typically aren’t due at the first death, but they can be substantial at the second. Since survivor IUL pays out only after both spouses have passed, it aligns with when the tax liability comes due. This timing makes it a cost-effective way to ensure the next generation has the liquidity needed to settle the estate without being forced to sell treasured or illiquid assets.

Flexibility through cash value accumulation

Although the primary focus of survivor IUL is legacy planning, the policy’s cash value offers a secondary benefit, tax efficient growth and access. The cash value grows based on the performance of a selected market index,¹ but with a 0% floor, it’s shielded from negative market years.

Policyholders can access these funds through withdrawals or loans,² offering a source of liquidity that can help:

• Supplement retirement income.
• Cover long-term care and healthcare expenses.
• Serve as an emergency reserve without disrupting other investments.

An option for business owners

For entrepreneurs and business owners, survivor IUL can help facilitate:

• Buy-sell agreements for family-owned businesses by providing capital to purchase shares from heirs of deceased partners.
• Succession planning by funding transitions to the next generation or chosen successors.
• Stabilization during the critical period following the death of the business’s primary leaders.

This type of insurance helps ensure that the business can survive without disruption while also protecting the family’s financial interests.

Putting the strategy to work

Survivor IUL is a sophisticated product that can address a wide range of estate, family, and business planning needs, but its effectiveness depends on proper design, ownership structure and integration with your overall financial strategy. A qualified financial professional can help you evaluate whether this type of coverage fits your long-term goals, coordinate with legal and tax advisors, and structure the policy to help deliver maximum benefit to your loved ones or your business. Learn more about life insurance offerings from Ameritas.

Sources and References:

¹The index options are not securities; you are not investing in stocks or an index itself. Therefore, credited interest rates do not include dividends paid by companies in the indexes. 

²Loans and withdrawals will reduce the policy’s death benefit and available cash value. Excessive loans or withdrawals may cause the policy to lapse. Unpaid loans are treated as a distribution for tax purposes and may result in taxable income.

Ameritas Value Plus Survivor Index Universal Life (form 3027) is issued by Ameritas Life Insurance Corp. In New York, Ameritas Value Plus Survivor Index Universal Life (form 5027) is issued by Ameritas Life Insurance of New York. Policies and riders may vary and may not be available in all states. Policy and riders may vary and may not be available in all states.