Final answer:
Tom has a survivorship or second-to-die life insurance policy, which pays the death benefit after the second insured person dies. This type of policy is used for estate planning and may have a cash value component.
Step-by-step explanation:
Tom's life insurance policy, which covers two lives and pays out upon the death of the second person, is known as a survivorship or second-to-die life insurance policy. Unlike traditional life insurance policies that pay the death benefit after the first insured person dies, survivorship policies are designed specifically to cover two people, often spouses, and the death benefit is only paid after the second person passes away.
This type of policy is often used for estate planning purposes, as it can help to provide liquidity for estate taxes or to fund a trust for heirs. It can also be useful in cases where the surviving spouse has enough income to live on until they pass away. Cash-value life insurance policies like whole life or universal life can also have a survivorship option while providing an accumulated cash value account that can be used by the policyholders during their lifetimes.