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.
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