Life insurance and your estate plan
Most people understand the need for life insurance, but not everyone knows that this is also a very important element of a solid estate plan. You will come into play with your succession plan in two different ways.
When shopping for life insurance, there are a few things to consider.
Your need for life insurance – Obviously, one of the first things you will want to consider when purchasing your insurance policy is what your needs are. One of the most common reasons people buy insurance is that it helps their family financially if they die. Ways this type of insurance can help include replacing lost income, as well as quickly providing money to help pay for your final expenses, such as medical bills and the cost of a funeral. Be aware that someone’s final arrangements can be very expensive.
The smart way to use life insurance – When you buy this type of insurance, you can set up an estate plan that will ensure that your loved ones receive this money without the major tax obligations that come with inheritance, such as estate tax and income tax. The best way to do this is to establish an estate plan that includes an Irrevocable Trust; With this type of plan the Life Insurance Trust buys the Insurance, and when you die it passes to your beneficiaries. It is sometimes better than an IRA or 401K, due to the fact that these types of assets will be taxed before passing to your beneficiaries.
Review of your life insurance policy – When shopping for a new insurance policy, you’ll want to review it to make sure you’re getting the amount of coverage you need, for the lowest premium available. You’ll also want to review your existing policies on a regular basis to make sure you’re covered and that you can’t find more coverage for the same price. If you are unfamiliar with policies and other financial matters, it is best to hire a financial advisor to help you with the purchase of your insurance, as well as with periodic reviews of your benefits.
A good estate plan should include insurance policies. With life insurance, you can help ease the immediate financial burden your family will face when you die, plus you can rest in the knowledge that you will take care of your family, even if you are not around to do so.