If you think about it, estate planning is probably the main reason why we buy life insurance. We want to make sure that those who will have to take care of our affairs after our passing will be able to do so without undue burden on their own finances.
Explains how to use your life insurance benefits for estate planning.
Advises which policy will be most effective for your needs.
Premiums can vary by as much as 50% for the same coverage and options, so it pays to get quotes from as many reputable insurers as possible.
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A life insurance policy can guarantee your beneficiaries receive your estate in full.
You work hard to earn your money and take pride in the things you own. Most likely, you want to see all your personal assets passed on to your heirs intact. However, your estate, which includes not only your house and land, but also your money and investments must be settled when you die.
In a nutshell, settling an estate includes taking inventory of your possessions, assessing their value, and paying estate taxes based on its net worth. Depending upon how large your estate is, this may reduce its worth by a substantial amount.
Your beneficiaries are also required to pay a tax on the things they inherit from you. All valuable assets you've left to them will be subjected to a capital gains tax. Since the capital gains tax is based upon your net worth, it is possible that the tax will exceed the amount your beneficiaries can afford. If this is the case, they may be forced to liquidate part or all of your estate in order to cover the tax.
To avoid the fate of having your estate significantly diminished by taxes, there are steps you can take. However, the taxman comes as surely as does the end of life, and some estate taxes simply cannot be avoided.
Purchasing a life insurance policy with a death benefit large enough to offset the amount of capital gains and estate tax you expect your estate to be subjected to, guarantees your beneficiaries will not be forced to sell your assets or be left with a fraction of your estate.
A life insurance policy designed with estate planning in mind should cover the immediate expenses precipitated by your death. Funeral expenses, fees associated with settling your estate, and other miscellaneous costs can really put a burden on your family. By reading estate planning info and making arrangements ahead of time, you can alleviate these concerns.
Since the death benefit from a life insurance policy is payable upon death, your family will have access to these proceeds instantly and can use them, if necessary, to pay any immediate financial obligations.
While we generally recommend that most people purchase a term life policy in order to maximize coverage at the lowest possible cost, term insurance is not ideal for estate planning purposes. Instead, if estate planning is your chief concern, we recommend some type of whole life policy.
A properly designed whole life insurance policy can guarantee the entire transfer of your estate to your heirs upon your death.
Although a term policy offers similar protection, you still run the risk of the policy expiring before you do. If this happens, or if you outlive your insurability under a term life policy (it is much more difficult to buy a life policy past retirement age), you lose all your protection.
To avoid this possibility we recommend purchasing a whole life insurance policy, so that you will have the peace of mind that comes with knowing that your estate settlement will be covered.
If you'd like a little help with designing the right whole or permanent policy, get in touch with an agent from one of our partner carriers, who can examine your total financial picture, and help tailor a policy to fit your specific needs.