Do You Need Life Insurance?

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 and  qualified estate planning attorney.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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