Survivorship life insurance is a product used mostly for estate tax planning purposes. Where estates are large but illiquid, this financial tool can be effective for raising necessary funds to conserve the estate from taxation. However, in many other cases, survivorship life insurance may have serious consequences for the insured and their heirs. For a wide variety of financial reasons, this strategy may be inefficient in handling estate taxes and other costs, especially if one spouse lives to or beyond life expectancy. A more serious consequence may occur when one spouse dies at an early age and the other spouse lives to an old age. In either of the two cases just mentioned, a significant portion of the estate assets may be lost for the heirs. These losses occur because of the lost opportunity costs of premium payments and/or death benefits not paid out at the first death. These costs should always be explained and clearly calculated to consumers considering survivorship life insurance as an estate planning strategy.

Some advocates of survivorship life insurance do not understand lost opportunity cost and therefore do not themselves realize the serious financial problems that may be experienced by the consumer. Before adding this strategy to your estate planning, make sure that your estate planner or life insurance agent has explained in detail the lost opportunity cost if you were to live past life expectancy, or if you were to die early and your spouse live to an old age. There are many other potential financial problems associated with survivorship life insurance that need full and complete explanation. Only a fair and balanced analysis can provide such a complete appraisal of this strategy as an appropriate estate-planning tool.