Question: In what circumstances does it make sense for a couple to buy “second to die” life insurance? Ann, Waukesha, WI

Answer: In essence, second-to-die insurance is a classic policy for wealthy couples to help their children pay the estate tax bill after both have died. Also known as “survivorship” insurance, the second-to-die policy insures the lives of two people rather than one. The death benefit is paid when the last spouse dies. The proceeds go toward the estate taxes. The heirs get the rest.

Here’s the thing: You would only buy second-to-die insurance if you have a large, complex estate. You would only purchase it after consulting with your estate lawyer, financial planner, family accountant and the like.

What’s more, in 2012 there is a $5.12 million per person estate tax exemption. A married couple can pass to their heirs $10.24 million that is free from federal estate taxes. The estate tax exemption is indexed to inflation. Smart Money summarizes changes in the estate tax law here.

Wealthy families may still find these policies useful as an estate planning tool, despite the large estate tax exemption. Nevertheless, my bottom line advice holds: I wouldn’t do anything without consulting with family financial professional advisers first.

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