It may be uncomfortable to think about what you want to do with your assets once you pass away, but planning is essential. One of the most common ways of estate planning is by using life insurance. It is an effective way to ensure that your loved ones will benefit financially and feel more secure after your death. The advantage of life insurance is that it is easy to acquire as well as can offer tax-free protection for beneficiaries.
Before understanding more about Life Insurance, you may want to check out our previous blog posts about estate planning, wills, and trusts. For a brief summary, estate planning is basically a process in which you decide what assets you want to pass on to your family or loved ones. You also decide who will handle your affairs if you at any point become unable to mentally or physically. It's basically just a way for you to get your financial affairs in order. It is often a good choice to get an attorney to help you with your estate planning. There is some information or issues that may come up that an experienced attorney can help you with. One of these issues could be estate taxes, which are to be paid by in order for the right to transfer rights after death. You definitely want to try to get an estate plan that helps you to avoid paying taxes, or pay very little.
Life Insurance is basically a way to pay an amount for certain period of time, and then when the owner passes away, the proceeds are paid out to the beneficiaries. It is a great way to financially help your family or close friends. It is especially important for parents with children. It can be a good way for them to set money aside for funeral costs, medical expenses, or just everyday life expenses. You can obtain a life insurance policy through an insurance company or a broker.
There are 2 main types of life insurance policies that most people get. Term Life Insurance is a policy that lasts for a specific time period. It can last somewhere between 1 and 30 years. It is often the most affordable, and can be a great way to customize the plan to your needs. A Permanent Life Insurance policy lasts until death. It is an investment, but at least you know that your beneficiaries will reap the benefit.
To incorporate life insurance into your estate plan, you can get a life insurance trust. When the life insurance policy is in the trust, you cannot make changes to it. The reason why this is done is to exclude the value of insurance proceeds from the taxable estate. The benefits will be passed down to the beneficiaries without estate tax consequences. This often is not the case though, so essentially this isn't necessary, but is something to think about or ask your attorney about.
Overall life insurance can greatly benefit your loved ones, and estate planning is essential. You worked hard for everything you have today, and making sure that everything you have worked for is distributed to the right people, or you are able to financially help others upon passing, is important!
Source: Legal Zoom