After both spouses die, the death benefit from a second-to-die life insurance policy is usually meant to go to the children, a charity, or to pay taxes.
In the U.S., there is a "marriage deduction" that lets you leave your spouse an unlimited amount of assets without having to pay taxes on them. Then, those assets become part of the spouse's estate, which could help pay taxes if it includes a second-to-die life insurance policy. There are less strict rules about taxes in Canada.
Small businesses also have to deal with tax issues, which is why business partners also buy second-to-die policies.
WHY YOU SHOULD BUY SECOND-TO-DIE LIFE INSURANCE
With a second-to-die life insurance policy, your beneficiaries can use the money from the policy to pay off your debts. This way, they won't have to sell your house or other assets to cover the costs.
By setting up trusts and using second-to-die life insurance as part of estate planning, wealthy people can lower their tax bills with a financial plan that includes second-to-die life insurance.
ADVANTAGES OF SECOND TO DIE LIFE INSURANCE POLICIES
Less expensive. Most of the time, second-to-die life insurance is cheaper than life insurance, but it depends on how old the people are. The premium is based on how long both people are likely to live.
Preserving an estate. People who care a lot about preserving their estates like second-to-die policies because the life insurance pays the taxes.
It's easier to get. It's easier to get a second-to-die policy than it is to get life insurance on your own. Since both insureds must die before the benefit is paid, the insurance company is less worried that one of them might not be in good health.
Builds your estate. Second-to-die life insurance is sometimes sold as a way to build an estate, not just to keep taxes off of it. Similar to individual life insurance, the death benefit of a second-to-die policy can make sure that certain people get money, even if you spend every penny.
People who don't have a lot of money but want to leave something to their children might want to get second-to-die life insurance.