Maryland Life and Health Insurance License Practice Exam

How do survivorship life insurance policies aid in estate planning?

1. Provide supplementary income

2. Offer immediate cash for investments

3. Provide funds for paying taxes

4. Guarantee dividends to beneficiaries

The correct answer is: Provide funds for paying taxes

Survivorship life insurance policies play a significant role in estate planning by providing funds to cover various financial obligations that may arise upon the death of the insured individuals. One of the key aspects of estate planning is ensuring that any estate taxes due upon death can be paid without forcing the beneficiaries to liquidate other assets. When a policyholder passes away, the death benefit from a survivorship life policy can be used specifically to pay off estate taxes, thereby preserving the value of the estate for the heirs. This is especially important for larger estates that may be subjected to significant taxes, ensuring that beneficiaries receive their intended inheritance without financial burdens caused by tax payments. While some other options might relate to aspects of financial planning, they do not directly connect to the primary function of a survivorship policy in this context. For example, while supplementary income or cash for investments could be beneficial, they aren't the primary focus of survivorship life insurance in estate planning contexts. Additionally, the guarantee of dividends is generally not characteristic of all survivorship policies, as many are designed primarily for the death benefit aspect rather than generating dividends.