In America, we insure our homes, vehicles, businesses–some of us even insure our pets. Along with all these types of insurance, we are also all told that we simply cannot be caught “dead” without life insurance. Do you really need life insurance? Is it the best option for you? Only you can make that decision, but there are some things to consider when contemplating the purchase of life insurance.

If you are part of a young family with no other means of support in the event of your death, life insurance may be right for you. Term life insurance typically provides the most coverage for the money but will not build any equity. If you have no other investments or assets that your family can count on, then a term life insurance policy may be your best bet.

If you have a decent investment portfolio and some valuable assets that can be used by your family for support in the event of your death, life insurance may not be the best way to spend your money. Adding to your already existing investment portfolio may be a wiser choice from a financial perspective.

If you are considering the purchase of whole life insurance, or one of the many variations thereof, make sure you do your homework. While this type of insurance does build equity, it often builds it at a considerably slower rate than other investments. While some variations of whole life will provide a bigger return for your investment, there is typically a large risk factor associated with the investment.

Decisions about all insurance, including life insurance, should be made as part of an overall financial plan, not just on the recommendation of a commissioned sales person whose interest is only to make a sale and is not necessarily in your best interest.

Northern California Estate Planning Counselors, LLP is a member of the American Academy of Estate Planning Attorneys.

Whether or not to include life insurance in an estate plan is one of the most commonly asked questions. As with all estate planning questions, the answer is unique to each individual; however, there are some things you should take into account when considering the addition of life insurance in your estate plan.

Your age and health. Life insurance is less expensive to purchase when you are younger and healthy, meaning you should be able to lock in the best rates. This is also when most people need life insurance the most — before they have other estate assets that can be passed down in the event of death.

Know what kind you are buying. Life insurance falls into two basic types — term and whole. Term only provides a death benefit while whole life potentially earns cash value.

Know your objective. If you only want to provide a financial benefit to a beneficiary, sticking with term insurance is likely your best bet. Talk to an objective financial advisor if you are considering whole life insurance. It can be a complicated investment strategy.

Decide how much you need. This can change over the years. If you are young and single, you may only need enough to cover debts and your funeral. As you age, you should factor in what it will cost to raise your children if you die before they reach the age of majority.

Shop around. Just as with other types of insurance policies the policy rates can vary widely. Take your time and compare rates before you commit.

Know when to terminate or convert. Life insurance is rarely the best way to invest your money. Review your financial portfolio and your needs on a regular basis to decide whether you still need to include a life insurance policy in your estate plan.

Northern California Estate Planning Counselors, LLP is a member of the American Academy of Estate Planning Attorneys.

Your estate plan must be in writing to be legally valid; conversations with your spouse or other family members are not enough.  Without written directions and authorization, family discord and upset may result and your wishes may not be followed.

Don’t Want to be Hooked to Life Support Machines, Put it in Writing in an Advance Health Care Directive

For example, Terri Schiavo, the Florida woman kept on life support for 15 years, had reportedly told her husband that she didn’t want to be hooked up to machines; but, she didn’t put it in writing.  After she collapsed in her home, she went into an irreversible coma.  Her husband sought to have the life support machines removed in honor of Terri’s wishes; Terri’s parents disagreed and a public and painful battle ensued.  In the end, when life support was finally removed, 15 years later, an autopsy showed that Terri had been brain dead since the very moment she dropped.  In California, the document that could have been used to avoid this tragic conflict is an Advance Health Care Directive. In this document, one can hand pick the person who will make decisions in the event of incapacity as well as giving direction about health care decisions.

Want Your Children to Inherit Your Retirement Accounts, Put it in Writing in Your Beneficiary Designations

If you want your children or someone else to inherit your retirement accounts, life insurance, pension, or annuity, you must designate those persons as beneficiaries in the asset contract.  Telling someone who you want to inherit what will not work.  And, if you change your mind, update your beneficiary designation, in writing.

Want Your Granddaughter to Inherit Your Book Collection, Put it in Writing in Your Will or Trust

Unless you’re going to pass along your family heirlooms and personal treasures now, you need to put your wishes in writing in your will or trust.  This is especially important if all of your children and grandchildren are not also all the children and grandchildren of your spouse.   For example, you’re in a second marriage and you have children from a previous relationship.

If your estate plan is not in writing, consult with a qualified estate planning attorney.

Northern California Estate Planning Counselors, LLP is a member of the American Academy of Estate Planning Attorneys.

Periodically, sit down and reevaluate your need for life insurance.  It’s often an essential part of an estate plan.

Life insurance can be used to:

• Replace income
• Fund a business buy – sell agreement
• Create an estate
• Pay federal estate taxes
• Equalize an estate
• Provide an inheritance for a child not in the family business

General life insurance tips:

• Only pay premiums that won’t take food off your table.  If you are insurance poor, you’ll end up dropping it.
• Term insurance is the least expensive way to purchase a large amount of insurance.
• Whole life insurance is the purchase of a term policy with an added investment.
• If an irrevocable life insurance trust owns your insurance, the proceeds will not be included in your estate for federal estate tax purposes.

Income replacement is the most common reason for purchasing life insurance so here are some applicable tips:

• Make sure that there is adequate insurance to replace your income as well as the services you provide to your family (i.e. child care, cooking, transportation, lawn mowing, accounting, and the like.)
• With objective professional advice, determine how much insurance you need.  One approach is to add up all the immediate and short term expenses that would occur if you died.  Then figure out how much you would have to invest at a 4% after tax return to replace your income.
• Be sure that there is adequate insurance if both you and your spouse die and your family members or friends need to step in to raise your minor children.  Most guardians cannot take on the financial burden of more children.

If you have questions about why you may need life insurance, consult with an experienced, qualified estate planning attorney.

Northern California Estate Planning Counselors, LLP is a member of the American Academy of Estate Planning Attorneys.

If you’re in a blended family, such as a second marriage with children from a previous relationship, you can do much to keep the peace in your family with your estate plan.  One way to keep the peace, using your estate plan, is to specifically consider and plan for your children.  This could include not making your children wait until your second spouse dies before they will inherit.  Waiting and putting the children second may cause hurt feelings and a breakdown of relationships that you’ve likely worked hard to foster.

Use Life Insurance to Create Inheritances, if Needed

If you have sufficient assets, you may wish to provide an inheritance for both your children and your spouse at your death.  If assets are scarce, purchasing life insurance to create an inheritance may be an option.  Consult with an experienced, qualified estate planning attorney before making such a purchase.

If You Own Assets Jointly, You Disinherit Your Children

Many married couples own assets jointly, such as in joint tenancy, so the surviving spouse inherits everything at the death of the first spouse to die.  This means that the surviving spouse gets all of the assets; and, the children, from a previous relationship, get nothing.

Don’t Make Your Children Remainder Beneficiaries

If your children are from another relationship, careful planning is needed if they will be the remainder beneficiaries of your spouse’s trust.  After your death, this could cause a breakdown in the relationship between your spouse and your children; there could well be an inherit competition regarding how trust assets are spent and how they’re invested.

Instead, providing for totally separate inheritances for your children and your spouse might be consider.  Have any remaining assets in your spouse’s trust go to charity or to the beneficiaries of your spouse’s choice.

If you’re in a blended family, you can keep the peace by carefully considering how your children will be included in your estate plan.  If you are in a second (or third) marriage, consult with a qualified, experienced estate planning attorney for assistance.  Don’t expect to find this type of sophisticated planning on do-it-yourself, internet or bargain basement

Northern California Estate Planning Counselors, LLP is a member of the American Academy of Estate Planning Attorneys.

When handling your estate planning, you want to make sure that you consider all of your planning needs.  This will ensure that you have a proper plan that will protect you during all of life’s unexpected events.  The information below will explain more about your needs.  If you have any questions about the information below, or if you’d like to start your estate planning, meet with an estate planning attorney.

• Have you taken the time to make sure that your family members will always have the assets needed to survive?
• Evaluating the need for life insurance is a part of the estate planning process.  You want to make sure that your loved ones will be able to pay for past debts and future expenses, if they ever lose your source of income.  Your attorney can help you determine if insurance is indicated and an appropriate level of coverage.
• Have you considered how you plan to distribute your assets?  During the estate planning process, you will determine how your assets will be distributed after your death.  You can use different tools to do so including a will or a trust.  In these documents, you decide how each asset is distributed and your instructions will be followed in the future.  You’re also able to use beneficiary designations to decide how some assets are distributed, such as your life insurance and retirement accounts.  It’s important to make sure that you check all of your designations as well as carefully outline your wishes in your estate planning documents to make sure that all of your current wishes are met.
• Have you taken the time to include your pets in your planning?  Many people love their pets the same way that they love their family members.  If you want to make sure that your pet is always loved and cared for, you may want to set up a pet trust.  This allows you to outline care instructions for a caretaker.  You’re also able to leave assets for the care of your pet (but NOT directly to your pet.)  This is a great way to ensure that your pet will also be taken care of.

If you have any additional questions about your estate planning needs, or if you’re ready to begin your estate planning, consult with an experienced, qualified estate planning attorney.

Northern California Estate Planning Counselors, LLP is a member of the American Academy of Estate Planning Attorneys.

When creating your estate plan, you will not only have to decide how your assets will be distributed, you will also need to make sure that your loved ones are always protected by having enough assets including, perhaps, life insurance.  We’ve outlined information below to help you better understand the importance of life insurance.  If you have any questions, or if you’d like to make sure that you have enough life insurance coverage, contact a qualified, experienced estate planning attorney.

Life insurance can be helpful in the following ways…

• Life insurance can be used to provide money after your death. This is important if you have a family who has been relying on your wages in order to pay monthly bills. The money can be used to pay your family’s everyday expenses as well as current debts.  It can also be used to pay for funeral expenses. For larger estates, it can provide important liquidity (e.g., in estates involving substantial real estate) and provide a cost effective means to pay estate tax taxes.
• Life insurance policy benefits avoid the probate process. Probate can be extremely expensive and can take a long time.  Because life insurance that is properly established is not subject to probate, your life insurance policy assets will be distributed to your beneficiaries more quickly.  This is a great way to ensure that your loved ones will get the help that is needed right away.
• You may need life insurance for other reasons. Other reasons to purchase life insurance include equalizing an estate, providing for a child not in the family business, creating an estate, funding a buy-sell agreement, and paying taxes.

When deciding if you need life insurance, it’s a good idea to analyze your current family situation.  Consider how many people rely on your income to get by.  Think about how many past expenses and debts that you will leave behind after your death.  It’s beneficial to make sure that you have the right level of coverage.

For larger estates, how the life insurance is owned could have a substantial impact on whether or not the insurance proceeds will be subject to estate taxes.

Another critical factor in assessing the role of life insurance in an estate plan is how to designate the beneficiaries of the insurance policy.  Due to the need to protect certain types of beneficiaries (e.g., minors, spendthrifts, special needs persons), careful consideration should be given to how the beneficiary designations are coordinated with an existing estate plan.

If you have any questions, or if you’d like to discuss your life insurance – estate plan needs, consult with a qualified, experience estate planning attorney.

Northern California Estate Planning Counselors, LLP is a member of the American Academy of Estate Planning Attorneys.