Colorado Life Producer License Practice Test

How does survivorship life insurance differ from joint life insurance?

1. It pays upon the first death only

2. It insures multiple lives with lower premiums

3. It can be purchased for single individuals

4. It provides a cash value component

The correct answer is: It insures multiple lives with lower premiums

Survivorship life insurance, often referred to as second-to-die insurance, is designed to pay out the death benefit only upon the death of the second insured individual. This type of policy is typically used in estate planning to provide funds for heirs to cover estate taxes, allowing the benefits to be deferred until both insured individuals have passed away. The choice indicating that survivorship life insurance insures multiple lives with lower premiums accurately reflects how these policies work. Since the death benefit is only paid after both individuals die, the risk to the insurer is lower compared to policies that pay upon the first death, allowing insurers to offer these coverages at a more affordable rate for the insured parties. In contrast, joint life insurance refers specifically to policies that pay out upon the death of the first insured. Therefore, it does not involve the same structure of delayed payout after both individuals have passed. Options related to being purchasable for single individuals or providing a cash value component do not accurately describe the unique characteristics of survivorship life insurance compared to joint life insurance, focusing instead on other life insurance formats.