How life insurance could help you with estate planning
What is estate planning and why is it important?
Estate planning is the process of arranging how your assets will be managed and distributed to your loved ones. It’s an important part of financial planning that everyone should take the time to complete to ensure their final wishes are fulfilled.
As you prepare to plan your estate, your goals may include:
- Identifying assets
- Choosing beneficiaries
- Naming guardians for dependents
- Creating wills or trusts
- Arranging for the payment of debts
- Strategizing to minimize taxes
- Making certain health care decisions
- Exploring the best types of life insurance for estate planning
How does life insurance fit into estate planning?
While planning your estate, it’s crucial to consider various financial factors. Final expenses like funeral costs, medical bills and estate taxes may add stress in an already difficult time. You might also want to help maintain your family’s lifestyle and replace lost income. Estate planning with life insurance could help provide financial security in a variety of ways.
How life insurance and estate planning could work together
Cover final expenses
Final expenses like estate taxes have the potential to result in hefty fees. Funeral costs and medical bills could also add financial strain. A life insurance benefit could provide your loved ones with extra money they may need.
Maintain your family’s lifestyle and replace lost income
If you have dependents or disabled loved ones, your life insurance benefit could help cover their everyday costs, maintain your family’s lifestyle and replace lost income.
Fairly distribute assets
If you own assets that are difficult to divide, a life insurance benefit can help you distribute more evenly among your beneficiaries. For example, a life insurance inheritance can provide cash to a loved one while an asset similar in value like a car is given to another.
Types of life insurance for estate planning
Term life insurance
Term life insurance pays a benefit to your loved ones during a fixed amount of time, typically for 10, 20 or 30 years. Term life insurance may be the best option for you if you only want coverage during a certain period, like until you pay off your mortgage or as your children grow older. Having this coverage could help maintain your family’s lifestyle and ensure they’re capable of making monthly payments.
Whole life insurance
Whole life insurance is designed to last your entire life, meaning you won’t have to worry about renewing your coverage as long as premiums are paid. A small amount of the money you pay each month will also be placed in a separate cash account to gain interest. This type of life insurance may be the right option for you if you want to remain covered as you age and ensure your loved ones receive a benefit.
Universal life insurance
Universal life insurance also stays in effect your entire life, has a separate cash account and pays a benefit to your loved ones as long as premiums are paid. But with universal life insurance, you can increase or decrease your premium and coverage amount. This may be a good option if you want to ensure your loved ones receive a benefit but want the flexibility of adjustable monthly payments and coverage amounts.
Choosing the right life insurance policy and coverage amount for your estate
When choosing the right life insurance for estate planning, it’s key to assess your budget, the future needs of your loved ones and how long you’d like coverage. It’s also beneficial to calculate expenses like funeral costs, lost income, debt payments, estate taxes and everyday bills when determining your policy’s coverage amount.
Beginning your estate planning journey
When should you start planning your estate?
It’s generally considered best practice to begin planning your estate as soon as you can to help ensure a process is in place to manage and distribute your assets.
Designating beneficiaries
Your beneficiaries are the people you choose to receive your assets. Family, friends, dependents, charities and organizations could be your beneficiaries. Designating beneficiaries helps ensure your assets are distributed to who you wish and simplify the process of receiving them.
You could explore placing your policy in an irrevocable life insurance trust
Placing your life insurance policy in an irrevocable life insurance trust (ILIT) could be a helpful tax planning strategy. This could be valuable because it can help your loved ones receive the benefit tax-free. It could also help protect your policy benefit from creditors, which is useful if you or your loved ones have outstanding debt. Keep in mind state laws and regulations may impact this planning strategy.
Working with a financial advisor or estate planning attorney may be helpful
Because estate planning is a legal process, it’s often recommended to work with a financial advisor or attorney. Working with a professional could provide valuable guidance and may help ensure the details of your estate are properly planned.
Reviewing your estate plan
Major life events like marriage, divorce, having children or buying a home could impact your beneficiaries and how you wish to distribute your assets. Reviewing your estate plan as life changes can help ensure your wishes are fulfilled.
Incorporating life insurance into your estate plan is a practical strategy that can help simplify the process and provide financial security for your loved ones. Explore coverage options from TruStageTM that may fit your needs today.
