Learn how life insurance in estate planning can provide financial security for your family. The Law Office of Paul Black can help you create a plan that meets your needs. Call us.
Life Insurance in Estate Planning
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Death often comes when you least expect it. Are you prepared for what happens after your death? Many are not. They are left wondering what the fate of their loved ones will be after their passing.
A life insurance policy combined with estate planning and risk management might be your answer. Combined, these elements can provide your family with financial support after death.
The following Life Insurance in Estate Planning guide can assist you in getting started.
Types of Life Insurance for Estate Planning
The main types of life insurance are term life insurance and permanent life insurance.
Term Life Insurance
Term insurance is purchased annually and usually increases in cost as a person gets older. Your named beneficiary will receive the death benefit. That is on the condition the policyholder pays the life insurance premiums until death.
Term insurance is like fire, wind, vehicle, and hospital insurance. You pay only for the protection with no capital value accumulation.
Permanent Life Insurance
Permanent insurance is term insurance with an accompanying savings plan. There are many varieties of permanent life insurance, all of which combine a savings plan with insurance protection.
The cash savings value buildup comes with a rate of interest stipulated in the policy. However, the insurance company will remove savings if you cancel the policy.
Premium payments are higher for permanent life insurance policies compared to term insurance. That is because some of the premium goes to purchase a savings plan.
How Can Life Insurance Fit Into Your Estate Plan?
Your life insurance typically serves three primary purposes in estate planning.
It supplies beneficiaries with death benefits.
It provides liquidity, which can be advantageous for your estate.
It enables family members to obtain financial support.
There are many strategies for maximizing your life insurance payout for estate planning. However, many estate planning lawyers recommend creating an irrevocable life insurance trust.
Irrevocable Life Insurance Trust
An irrevocable life insurance trust (I.L.I.T.) will help you manage your term or permanent policy while alive. With an I.L.I.T., you can transfer your policy to the trust or use the trust to purchase life insurance. As such, the trust owns the life insurance.
The trust document will establish who administers the assets, receives the benefits, and the conditions.
Since the trust owns the insurance, it reduces estate taxes on assets not qualifying for a charitable or marital deduction. It can also aid in administering and distributing proceeds upon the insured’s death. It provides immediate liquidity to the insured’s estate and beneficiaries.