Why Your Estate Plan Should Include Life Insurance

5.15.18We insure our homes, our cars and even our ability to work. We also buy life insurance, which could be the most important insurance policy you own and not just for when you have passed away.

People typically think of life insurance as a means of paying final expenses, such as funeral costs and leaving some money to family members.  However, life insurance is more than a policy your heirs cash in when you pass. It can also work as a financial tool while you are living.

Benzinga’s recent article, “Life Insurance Costs and Payouts at Different Ages,” explains that a life insurance policy is a contract you have with an insurance company. You pay them a premium, and they will give a lump-sum payment to your beneficiaries when you die.

There are two kinds of life insurance: term life and whole life. Term gives you coverage for a specific period. Whole life or permanent life insurance provides lifetime coverage that doesn’t expire. In addition, universal life insurance plans are frequently used to help with estate planning and to preserve wealth to be transferred to beneficiaries.

Term life insurance can be used to replace lost income during your employment years. It can provide a safety net for your family and help ensure that your family’s financial goals stay intact without your income, like paying for college tuition or the upkeep of a family business.

Whole life insurance is a type of permanent life insurance designed to provide the owner with lifetime coverage. The payments are usually fixed, and unlike term insurance, whole life has a cash value. The cash value works in the same way as a savings account and accumulates over time. These policies can be used as part of an estate planning strategy and help to preserve the money to be transferred to your family, if you pass away unexpectedly.

Universal life insurance policies can be used as long-term income replacement, which will last longer than your employment years. There are some universal life insurance plans that are created to focus on providing both death benefits and building up cash value over time that the owner of the policy may borrow against, while they’re living.

The amount you pay each year for your term or whole life insurance, depends on several factors such as your health, lifestyle, and age. Your age when you apply for term or whole life insurance helps to determine the amount of your premium.

Talk with your estate planning attorney about what sort of life insurance policies makes the most sense for your situation and your family. You want to make sure that your resources for life insurance align with your estate plan and protect your family.

Reference: Benzinga (April 2018) “Life Insurance Costs and Payouts at Different Ages”

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