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 and 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.