The Role of Life Insurance in Estate Planning: How to Provide for Your Loved Ones
Life insurance is a critical element of estate planning. Having the right policy in place protects your loved ones against any financial obligations that may occur after your death such as estate taxes or other debts. But the advantages go beyond this, as we’ll outline in this blog.
How Can Life Insurance Benefit My Estate?
It can help with faster payouts. While the will you make will eventually cover expenses for your family, the wait for an estate to clear probate is often long, and escalating funeral and burial costs, as well as debts and taxes, will need to be paid sooner rather than later. Liquidating assets is a long, drawn-out process. Death benefits of a life insurance policy, however, can be claimed by your heirs immediately, giving them access to money they might need right away to settle your affairs.
It can help equalize the inheritance you leave. If you have multiple heirs, it can be difficult to split up assets, which could lead to conflict. In the case of a business, you may not wish to split the estate up, because this would reduce or eliminate the asset’s ability to generate revenue. Having a life insurance policy is a good way to equalize matters in the family: one heir, for example, may be planning to run the business, but another may not be interested. Having a life insurance payout will allow the latter to receive money from the estate.
Your death benefit can be used to support heirs. Death benefits from a life insurance policy can be structured any way you want. If you have heirs who will need an income after you pass away – an aging spouse, for example, or a child with special needs — the death benefits you leave behind can be set up to support these dependents.
How Much Life Insurance Do I Need?
How much life insurance you need – and what kind — will depend on your family, your income, your business and the legacy you wish to leave behind. It’s also important to understand the difference between the types of life insurance.
Term life insurance. This type of insurance is good for a “term” — usually 10 to 30 years. If you pass away after the term has expired, you will not receive a payout. When the term is up, you’ll either need to enter a new term policy, or roll your coverage into a more permanent type of insurance, either universal or whole life insurance.
Permanent life insurance. Permanent life insurance policies remain in effect for your entire life, and they build cash value over time. Whole life insurance or universal life insurance are good choices to ensure that your funeral and burial, estate taxes, final expenses, and any legacy you wish to pass to your family or others are covered regardless of when you pass away.
Discuss Your Needs with an Estate Planning Professional
Arizona-based Prime Wealth Advisors is passionate about helping you protect your wealth through estate planning and life insurance. Our experienced team of financial planners, investment managers, tax accountants and attorneys work together to help you minimize worries and maximize results.