Estate Planning & Life Insurance

 

 

 

Life insurance has come a long way since the days when it was known as burial insurance and used mainly to pay for funeral expenses. Today, life insurance is a crucial part of many estate plans. It can:

  1. provide much-needed income that is immediately accessible to your survivors
  2. allow you to replace wealth lost due to estate shrinkage (i.e., the estate taxes and expenses associated with your death) and
  3. allow you to give money to your favorite charity.

What are the estate planning benefits of life insurance?

Life insurance can protect your survivors financially:
You can buy life insurance to help ensure that your survivors don't suffer financially when you die. You can protect their long-term financial needs by planning so that they will have enough money to pay their bills and live comfortably for years to come. You can also use life insurance to protect your survivors' short-term financial needs. Because life insurance proceeds normally don't pass through probate, your loved ones will have enough money to pay their bills right away--they won't have to wait until your estate is settled.

Life insurance can replace wealth that is lost due to estate shrinkage:
Life insurance may be the number one method of replacing wealth that is lost due to estate shrinkage. To ensure that the estate (money and assets) you leave to your survivors isn't less than you intended, you can buy enough life insurance to cover the expenses associated with your death, such as taxes, fees, and other debts that your survivors will have to pay.

Life insurance can be given to charity:
If you want to leave money to charity when you die, consider using life insurance. Not only does life insurance allow you to make a substantial gift to charity at relatively little cost to you, but there are certain tax benefits as well. For instance, depending on how you structure your gift, you may be able to take an income tax deduction equal to your basis in the policy or its fair market value. Or, you may be able to deduct the premiums that you pay for the policy. In addition, gifts to charity may reduce estate taxes owed when you die.

Plan carefully if you expect to leave behind a substantial estate
Your survivors generally won't owe income tax on any life insurance proceeds that you leave to them. However, they may owe estate taxes if you leave behind a large enough estate but don't plan ahead. In general, if you're leaving behind a taxable estate worth less than a certain amount, your survivors won't owe estate taxes on a life insurance policy that you leave them. But, if you intend to leave an estate larger than that amount, you may want to consider the estate tax consequences of owning life insurance.

In general, to avoid life insurance-related estate taxes, make sure that you don't:

  • Own the policy or have any incidents of ownership in the policy
  • Make the proceeds payable to your estate
  • Make the proceeds payable to your personal representative (executor)
  • Make the proceeds payable to a beneficiary to satisfy a debt or to pay alimony or support
  • Pay the premiums

Learn More...

Life Insurance Overview | Understanding The Basics | Term & Cash Value
Coverage Amounts | Reading Policies | Planning Concerns | Life Calculator | Life Glossary

Please Note: The information contained in this Web site is provided solely as a source of general  information and resource.  It is a not a statement of contract and coverage may not apply in all areas or circumstances.  For a complete description of coverages, always read the insurance policy, including all endorsements.