Most people understand the need for life insurance, but not everyone knows that this is also a very important element to a solid estate plan. It will come into play with your estate plan in a couple of different ways.
When you purchase life insurance there are some things that you will want to consider.
Your Need for Life Insurance - Obviously one of the first things that you will want to consider when you purchase your insurance policy is what your needs are. One of the most common reasons that people purchase insurance is that it helps their family financially if they should die. The ways in which this type of insurance can help, include replacing lost income, as well as providing money quickly to help pay for your final expenses, such as medical bills and the cost of a funeral. Keep in mind that someone's final arrangements can be very expensive.
The Smart Way to Use Life Insurance - When you purchase this type of insurance you can setup an estate plan that will ensure that your loved ones receive this money without the major tax liabilities that come with inheritance, such as estate tax and income tax. The best way to do this is to setup an estate plan that includes an Irrevocable Trust; with this type of plan the Life Insurance Trust buys the Insurance, and when you die it passes to your beneficiaries. It is sometimes better than an IRA or 401K, due to the fact that these types of assets will be subject to taxes before passing to your beneficiaries.
Reviewing Your Life Insurance Policy - When you purchase a new insurance policy you will want to review it to ensure that you are getting the amount of coverage you need, for the lowest premium available. You will also want to review existing policies on a regular basis to make sure that you are covered, and that you cannot find more coverage for the same price. If you are not familiar with the policies and other financial matters, it is best to hire a financial planner to help you with your insurance purchase, as well as regular reviews of your benefits.
A good estate plan should include insurance policies. With life insurance you can help to relieve the immediate financial burden that your family will deal with when you die, plus you can rest knowing that your family will be taken care of, even if you are not around to do it.
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