No one wants to think about their death. However, it is an unavoidable part of life. Creating a strategy that supports your loved ones in the wake of your passing can give you and your family peace of mind.
We know life insurance and estate planning can go hand in hand. Learn how to leverage your assets to protect your family members from costly expenses below.
Life Insurance’s Role in Estate Planning
Most people use their life insurance policy’s benefits to provide for their families after passing away. The death benefit’s amount depends on the type of policy you purchase. It can replace income, eradicate debts, and help with funeral expenses.
Estate planning means managing your assets before death. You determine how to distribute vehicles, real estate, personal belongings, and financial balances among your friends and family members. Your life insurance benefit counts as a financial asset.
Types of Life Insurance To Consider
The coverage your family receives depends on the life insurance policy you purchase. The two most common types of policies include term life and whole life insurance. Each policy offers very different coverage allowances.
Term Life Insurance
As the name implies, term life insurance covers a predetermined period, such as 10, 20, or 30 years. If the policyholder passes away during the coverage’s active period, their family can access the benefits, which usually cover:
- A death benefit
- Funeral costs
- Medical costs
Your coverage depends on the riders you add and the policy’s underwriting. However, it has no cash value. You cannot claim your benefit if you live past the term’s end.
Whole Life Insurance
Whole life policies, known as universal life insurance, come with savings plans. This coverage is ideal for bringing life insurance and estate planning together. A savings plan increases in cash value over time.
A whole life insurance policy will cover the same areas as term life insurance. However, you have the added benefit of a nest egg that increases in value over time. If you terminate your policy or pass away, you can access or distribute the savings to your family.
How To Combine Life Insurance and Estate Planning
When planning your estate with your life insurance policy in mind, you should avoid making financial moves that increase your eventual estate tax. The state and federal government levies a tax based on your estate’s net worth before the power of attorney can distribute it to your family members. Using life insurance for estate planning can put your assets’ worth above the acceptable amount for exclusion exemption.
ILIT
An irrevocable life insurance trust (ILIT) can prevent this from happening. Ultimately, you want your families to receive as much of the benefit as possible. An ILIT gives benefit ownership to another party, keeping your estate value more modest.
However, your life insurance provider can only make one benefit payment without taking taxes out of the sum. The company won’t pay taxes if you include your benefit in your estate. However, it will pay taxes during the second payout from the ILIT.
In-Force Illustration
You can also encounter other issues, like insurance lapses. An in-force illustration demonstrates whether your benefits are at risk of losing value. You can learn the total value of your policy’s assets, and choose your next estate-planning steps accordingly.
Simplify Your Estate Planning Efforts With Medical Profiles
Since life insurance and estate planning go hand in hand, prioritizing the best policies with generous coverage is essential. Medical Profiles helps you in your estate planning journey with paramedical exams that come to you. Obtaining universal life insurance starts with a comprehensive exam. Book an appointment at 832-251-3926.
