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How Does Life Insurance Impact Estate Planning?
If you have a life insurance policy when you die, your beneficiaries will receive some benefits that can make the administration of your estate less costly and less of a burden on them:
- As soon as the policy holder dies, the money from the policy is made immediately available to the beneficiary. This means that if the beneficiary is the estate or close family, the money could be used to pay off the deceased's debts and funeral expenses.
- If your estate is large enough to incur estate tax liability, life insurance proceeds will not contribute to the amount of the estate qualifying for an exemption.
Does Everyone Need Life Insurance?
No. Life insurance is primarily for the person who wants to take care of family members or other loved ones financially after the person dies. It also depends on the immediate financial situation of the person, since people who are more strapped for cash obviously have greater financial priorities than paying for a life insurance policy. There are certain factors you should think about when determining whether you really need a life insurance policy:
- The number of people who are dependent on you financially. If you have a lot of people depending on you financially, then you have a greater reason for obtaining a life insurance policy.
- If you do have dependents, try to assess how much money they would need, and for how long, if you died right now. If your savings would not be able to last your dependents until they could become financially independent, you may want to consider purchasing a life insurance policy.
- Keep in mind that your property may be in probate for months after you die, and life insurance proceeds are immediately available.
- If you do not have assets that will be readily available to pay for any debts or expenses when you die, a life insurance policy is a good option to provide such "liquid" assets.
Should I Contact an Estate Attorney?
You may want to consult an estate attorney. Your attorney can help you plan out your estate based on your future needs as well as the needs of your dependents. Your attorney can help you understand whether it would be advantageous for you to purchase a life insurance policy, and how it will affect your dependents once you have passed on.
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Last Modified: 09-15-2014 02:15 PM PDT
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