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Last Updated on June 19, 2024 by Insurdinary Editorial Team | Fact Checked by Rhonda Gary -->
Throughout your life, you’ve likely been a mother, father, husband, wife, or another caregiver to your precious family members. With this important role, you’ve had to provide physically and financially for your loved ones, ensuring they’re safe and content day by day.
Do you want to ensure they have what they need to reach their goals, such as a roof over their heads and college tuition? Estate planning helps you continue to provide for them long after your death. Still, when your property switches hands, settlement costs and estate taxes are just a few of the financial burdens your loved ones will have to deal with.
That’s where life insurance comes in. We break down some options below so that you can start planning the future of your estate.
As you know, life insurance acts as a second income to help a policyholder’s family when they need it most to pay for anything from utility bills to burial costs. Life insurance also plays a central role in estate arrangements and the money required to pull everything together.
No two people have the same needs, and insurance providers offer both term and whole life insurance. Term life insurance doesn’t last the rest of the policyholder’s life but rather a set amount of time, such as 20 years. The insured can also set the end date by age, so, for example, they receive coverage until the age of 65.
Around 33% of women do not have life insurance coverage, and this may be because more than half of those surveyed overshoot the costs involved in term life policies. With these time-limited policies, the insured receives coverage on an as-needed basis. Paying one year’s worth of premiums provides one year of coverage, but you usually also extend coverage or switch over to permanent coverage.
With term life insurance, the policyholder’s beneficiaries only obtain a payout if the policyholder dies when the policy is active. It’s a perfect option for parents who only need the insurance as a backup before or while putting kids through college or paying off mortgage debt. For others, term life products feel less expensive than permanent life insurance and don’t require the same long-term commitment.
The other primary option is whole life insurance—permanent coverage that ensures a payout after the policyholder’s death, no matter when that may be. Each monthly premium the insured pays is in one of three categories:
This universal life insurance option allows more flexibility. You can easily change coverage types and amounts as long as you’re paying the premiums every month. You can also cancel coverage but surrender fees (subtracted from the death benefits’ lump sum).
Have you thought about your financial legacy strategy? Which insurance type suits your preferences and budget and your family’s needs best? Whether you choose whole or term life, estate planning lawyers usually suggest combining it with an irrevocable life insurance trust to control the policy.
According to Investopedia, these kinds of trusts help to move assets, death benefits, property, and more from the grantor to the beneficiary, all with as little creditor interference and estate taxes as possible.
Before delving further into how life insurance (and trusts) help with inheritance planning, let’s discuss what it means to plan your estate.
It's not just the wealthy that should consider planning the future of their estate. Anyone who owns any of the following also has “an estate” that they can’t take with them when they die:
Estate management means you go ahead and name beneficiaries (people or organizations) that you nominate to receive your estate once you’re gone. You also create a plan that allows them to do so with as few fees and administrative tedium as possible.
Planning your estate also means naming guardians for underaged children, leaving directions for if you become incapacitated, and similar details that enable people to honor your wishes if you pass away.
Why do life insurance policies so often come up with the idea of estate planning? Here are a few considerations:
The federal government and specific states will charge estate taxes that your beneficiaries must pay (usually within nine months) after your death to benefit from your estate’s transfer. Assets take a while to divide up and obtain legally with delays in the liquidation process.
Sometimes, this means your beneficiaries might not receive the assets in time to use them to cover your pending estate taxes. Can your family cover these often high costs out of pocket?
If not, families will often turn to life insurance payouts, which can settle outstanding bills, medical costs, funeral arrangements or burial charges, and estate taxes from the federal government. That way, they don’t have to sell assets, borrow money, or forfeit the inheritance you’ve left for them.
Do you have multiple beneficiaries, such as two or more children that you want to split assets between equally? The division doesn’t cause complications and conflicts, like one person receiving more than the other. Life insurance could take care of that.
Your life coverage also makes decisions in your heirs’ best interest so that they obtain optimal funds and values. For instance, could splitting your estate erode its revenue-generating ability? The insurance provider equalizes that inheritance.
For example, the process might allow one person to keep the estate while the other collects another part of the legacy with equal value, like the insurance death benefits.
Just as handling your home and other personal assets is vital for your spouse, children, or other family members, estate planning for your business is crucial. Your business partners don’t want to lose the company after your death. However, if there’s no formal partnership agreement in place, you may find that the government legally dissolves the business.
Every partner could lose their share and have to close the partnership unless the agreement transfers your share to your estate, leaving the remaining company shares to the partners. When this occurs, estate heirs can make financial decisions involving the company but don’t have a managerial say.
Like your estate, you can also split your corporate interests evenly among shareholders so they can sell or keep their stake without jeopardizing the other members’ shares. For example, with a buy-sell agreement, surviving partners can buy out your share and that of those leaving the company while receiving death benefits for a smooth ownership transition.
Life insurance does more than settle immediate issues when dividing up your estate or paying out your beneficiaries; it’s a long-term thing. Legacy planning helps you direct family matters long after you’re gone, including which family members should receive support for the rest of their lives.
A trust can determine when and how much they receive at a time. It holds onto your assets for your beneficiaries after your insurance pays out the transfer fees so that, rather than a lump sum inheritance, your estate’s trustee can supervise the increments. This arrangement safeguards the following beneficiaries:
Discussing end-of-life plans is never easy. If you know how to take full advantage of your life insurance policy, whether term or whole, you can secure your family’s financial stability. You can also determine wealth succession and asset distribution during estate planning.
Why not begin with some direction from a qualified team with years of experience in comparing top insurance providers and policies side by side? A service like Insurdinary helps you uncover the lowest insurance rates fast and even apply on the spot. It’ll save you time and effort in this part of your estate planning and promise peace of mind that you’ve done the best you can for those who depend on you.
When you need five-star services from a top-rated insurance information platform, Insurdinary offers support 24/7. Contact us at info@insurdinary.com or online for a free quote today!