Insurance companies have also designed cash value life insurance policies to insure two lives, paying death proceeds on only one life. This can be advantageous since the premium for the two-life policy is substantially lower than the premiums for two separate policies. However, it is important to make sure that insurance is not needed at the death of both individuals.

First-to-Die

This type of life insurance product is designed as either a whole life or universal life policy. The insurance company pays a death benefit on the first insured's death.

Is this kind of policy suitable for you? Again, you may be better off with two separate term insurance policies. However, if you're really inclined to purchase cash value life insurance, it is best suited for a two-earner family where both spouses' earnings are about the same. It can replace the income that is lost upon the death of a working spouse or to pay off the mortgage. Assuming there are dependants, you still have insurance needs to be filled at the death of the second spouse.

A first-to-die policy can also be used as an estate-planning tool as a source to pay taxes at the death of the first spouse if the unlimited marital deduction is not fully used. If you or your spouse is a business owner, first-to-die policies may be used to fund buy-sell agreements and other benefit needs.

Second-to-Die

These unconventional life insurance policies insure two lives and are primarily used for estate planning purposes to help pay estate taxes at the death of the surviving spouse (second-to-die). They are typically either whole or universal life policies and are usually written to insure husband and wife or a parent and child.

This type of policy can be used to cover an estate tax bill, to provide for heirs, or to make a charitable contribution. The premium on a second-to-die policy is generally lower than for separate policies, since the policy is priced based on a joint age, and the insurance company's administrative expenses are less with one policy.

Typically, an irrevocable life insurance trust is set up before the insurance is issued. The trust is the owner and beneficiary of the policy so that the face amount is not included in the insured's taxable estate.