Misunderstandings about how much life insurance costs and what type to purchase are the most significant barriers to buying a policy. Even among those with a life insurance policy, there are knowledge gaps about how it can be used to meet their financial and estate planning goals.

Two Types of Life Insurance for Estate Planning

There are two types of life insurance to consider when engaging in estate planning:

●        Term life insurance pays out a death benefit if you pass away during the policy's “term,” typically 10 to 30 years.

●        Whole life insurance remains in effect for the entirety of your life and can build cash value over time. Cash value is the portion of a life insurance policy that accumulates over time and may be available to the policyholder to withdraw or borrow during their lifetime.

Several variations exist within these two types of policies, each providing different benefits at different price points. Life insurance policies designed to meet specific purposes, such as those that cover loan balances and final expenses and those that insure two lives (for example, first-to-die and second-to-die policies), are also available.

Life Insurance Perks You Might Not Know About 

On the surface, life insurance is a straightforward financial product: you pay premiums in exchange for a tax-free cash benefit that the insurance company pays to your loved ones after your death.

Most people who buy life insurance do so because they have financial dependents. However, life insurance policies can also provide essential benefits to the policyholder. From married couples with kids to couples without children, empty nesters, retirees, business owners, and investors, life insurance can provide several perks you may not have thought about.

Here are some creative ways to fit life insurance into your estate plan: 

●        Funding a trust. Maybe you have a child with special needs or another dependent who requires ongoing care or support. You may want to set aside money to help fund a child's education, first home, or travel. Or, like many modern families, you may have a blended family with you or your spouse, who has children from previous relationships. You could even have a beloved pet you want to ensure is cared for if you pass away unexpectedly.

Each of these situations—and many others—can be well-served by naming a revocable or irrevocable trust as the beneficiary of your life insurance policy rather than an individual beneficiary or beneficiaries directly. Funding a trust with life insurance proceeds allows you to set terms on how the money is used and provide for the unique needs of your loved ones. An irrevocable life insurance trust can also avoid probate and may, in some circumstances, reduce estate taxes.

●        Paying taxes and debts. Most importantly, your debts do not just disappear when you die. In addition to any outstanding creditor claims and income taxes that may be due upon death, dying can trigger estate and inheritance taxes that, if not planned for, can quickly drain your estate. You can purchase life insurance to cover your estate's tax payments and other debts and eliminate the need to liquidate your accounts or sell illiquid assets (like a business or art collection) to satisfy these claims.

●        Equalizing inheritances. The death benefit of a life insurance policy can be used to help equalize the inheritances for multiple heirs when you would like to give each beneficiary equal value but have assets you do not want to liquidate (for example, a family business, family home, or cottage) to truly make things even. For example, if one child wants to keep the family vacation home and the other wants to sell it, you can gift the house to the former and buy a life insurance policy equal to the home's value to benefit the latter. As another example, if you want to give your family business to a child who works in the industry but has no assets or insufficient assets to provide for your other children, a life insurance policy can give an equalized inheritance to those other children.

●        Making philanthropic donations. Nothing says you must name a loved one as a life insurance policy beneficiary. Your policy, in part or in whole, can be a gift to a charity or a nonprofit organization. However, before structuring a life insurance policy to benefit a charitable cause, check with the organization to ensure all applicable procedures are followed.

●        Paying final expenses. The cost of living has not only gotten more expensive, but funeral and burial expenses have also surged and can cost up to $10,000 or more. A specialized type of life insurance policy, or final expense life insurance, can be purchased to cover end-of-life expenses like funeral and medical bills.

How to Fit Life Insurance into Your Estate Plan

Life insurance, like estate planning, is for everyone. No matter your stage of life or circumstances, adding life insurance to your estate plan can give you and your loved ones flexibility to deal with expected and unexpected expenses in the future.

Suppose you are one of the more than 100 million Americans facing a life insurance coverage gap. In that case, we can help you and your trusted advisors craft a plan to bridge that gap with policy advice that fits your needs, situation, and budget.

Schedule a meeting to discuss how life insurance can strengthen your estate plan.

Contact Hartmann Law Today

If you have questions about life insurance and estate planning, contact our office to speak to an estate planning attorney.

Take steps to start your Life and Legacy planning today!  Take action to ensure your voice is heard when you are unable to speak for yourself.  Make the decision to protect yourself, your loved ones, your business, your property.   

Schedule a call today with Hartmann Law.

Hartmann Law provides Life and Legacy plans ready for today with an eye on the future.

YOUR CHOICES.  OUR GUIDANCE.

Life and Legacy Plans created by design and not by default!