Using Life Insurance For Estate Planning
Estate planning may seem like an elaborate legal process for people with large amounts of real estate or wealth. But truthfully, estate planning is not contingent on how much money you have or the property you owe — it’s the process of planning for how your personal belongs, property and finances will be handled upon your death. Estate planning is a helpful process for anyone and can be a lifeboat for family members and loved ones after your passing.
Many people consider life insurance when thinking about protecting their family in the future, but do not realize that there is more they can do. Instead of thinking about just one or other, combining life insurance and estate planning can create a well-rounded end of life plan that helps take care of loved ones.
What is the difference between life insurance and estate planning?
It is easy to see life insurance and estate planning as related subjects, but they are more intermingled that you may expect. In fact, life insurance is considered a tool for estate planning, instead of an alternative to managing your affairs.
Life insurance offers financial security for your spouse, children or another person of your choosing in the event of your death. With life insurance, you pay a monthly premium to ensure that if you were to pass, your family would receive a lump sum of money (of your choosing when you signed up for the policy). This money can be used for funeral arrangements, to pay off expenses or debts you left behind, keeping a business you might own afloat until other arrangements can be made, or simply for daily living expenses for your family until they can get back on their feet. Life insurance does not designate who receives your belongings or assets and is simply a form of monetary support.
Estate planning, on the other hand, is a guide for your loved ones on how to handle your personal belongings, finances, and affairs after your death. Estate planning includes a variety of factors, such as who receives your personal assets (like money or real estate), your will, naming a caretaker or guardian for your dependents or pets, and more. Life insurance can be a tool used in estate planning to help your last wishes be carried out or to help with the costs of business or personal affairs you leave behind. Overall, life insurance is part of the estate planning umbrella and can be used in a variety of ways.
How can life insurance be helpful in estate planning?
Life insurance can be helpful in several ways when it comes to planning your estate. Everyone’s plans for life insurance differ based on each personal situation, but there are many common scenarios that fit your needs. When considering how you may want to use life insurance when planning your estate and last wishes, ask yourself these questions:
Do I have a family or young children who rely on me for their daily needs?
Many people believe that estate planning is for retirees, but many people begin the process at a young age, just in case, to ensure care for their growing family. Many parents choose to designate a family member or guardian for their children or dependents in the case of their death. A life insurance plan can provide a level of protection for loved ones in that it offers near-immediate payouts that cover their daily living expenses. In addition, you can use life insurance as part of your estate plan to ensure that young children are able to afford the cost of college should you no longer be around when they are old enough to attend.
Do I have a large estate?
Unlike life insurance, handling your estate and other affairs can take some time. In this situation, money to help with funeral arrangements or daily living expenses can be tied up for some time as it moves through the estate process. Life insurance can help your family during this time, with everything from big expenses to daily needs.
How will my family pay for funeral or memorial arrangements?
In the United States, the average traditional funeral costs between $7,000 and $10,000. The sticker shock can be additionally difficult for families facing unexpected deaths or who are not sure how to cover the cost. One important component of estate planning is handling the final expenses of a funeral — and here, life insurance is a commonly used tool that can help.
Do I own a business that I want to pass on to a family member?
Life insurance can also be used to ensure your business or entrepreneurial venture keeps going even after your death. In many cases, sole proprietor businesses are difficult to run after the owner’s death because of a lack of funds; as the business is closed for some time, bills can stack up and lenders can begin calling. Life insurance policies can be used to float the business until arrangements can be made, but estate planning encourages you to consider a business plan for the company after your departure. In this case, the policy can be used to buy shares or a portion of the company to transfer ownership to a family member.
Do I have a large life insurance policy, such as a million dollar policy?
If you already have life insurance, estate planning can ensure that the money designated for your loved ones does not run out before necessary. With large policies such as million dollar life insurance plans, you may choose to create a trust of sorts that determines how the funds can be used after your death. This can tie in with wealth you are already leaving behind, or can have separate rules for disbursement. In many cases, people who take out million dollar policies often have business ventures or assets with some level of investment or debt; estate planning can dictate how you would like the funds to be used, which is especially helpful in situations where your spouse or children may not understand how business operations or your personal wishes.
Estate planning and thinking about the end of life are not necessarily fun things to do, but considering how life insurance can play into your estate plan is important. If you are thinking about starting the process, let PolicyZip help you locate the life insurance plan that fits your estate planning needs by filling out the form below or calling (888) 211-5685.