Many people believe that if they have a will, their estate planning is complete, but there is much more to a solid estate pla...Read more
Using Life Insurance as Part of Your Estate Plan
- October 25th, 2023
Life insurance can play a few key roles in an estate plan, depending on your age and situation in life.
There are two main types of life insurance: term and permanent. Term life insurance is the simplest. You buy a policy for a set number of years and have coverage with a death benefit if you die during that period. Permanent life insurance policies provide coverage for life (or for as long as you pay premiums). In addition to paying a death benefit, the policy builds a cash value, which can be used as collateral for a loan or withdrawn from the account. Whole life, universal life, variable life, and variable universal life are different types of permanent insurance.
Common Reasons for Purchasing Life Insurance
When children are young, life insurance can provide funds to a surviving spouse and children to help make up for lost income and pay for schooling. Typically, a term life insurance policy will work well for this purpose.
Once you retire, you may no longer need life insurance. If your spouse or other dependents won't lose any income when you die, life insurance may not be necessary, and your premiums may be better spent on other things. However, more and more people are carrying debt into retirement. In this case, a life insurance policy can be used to pay off that debt once you die. This may allow your heirs to keep a house that might otherwise be sold to pay off debt. Life insurance can also be used to pay off an outstanding mortgage.
Using Life Insurance to Offset Long-Term Care Costs
It may be better to have a permanent life policy in retirement because the cash value can be used to provide income to retirees or to pay long-term care costs. There are also hybrid long-term care insurance and life insurance products that can be used for this purpose.
Other Benefits of Life Insurance
Life insurance passes outside of probate to provide beneficiaries with funds more quickly. It can be used to pay for funerals and other immediate final expenses. While most families do not have to pay federal estate tax, life insurance can be used to pay state estate taxes.
To make sure you use life insurance effectively as part of your estate plan, find an estate planning or elder law attorney near you.
Created date: 12/21/2020