When you make a plan for your estate, you may opt to buy a life insurance policy that can help you in a variety of ways. Life insurance can help you achieve several financial and emotional objectives.
Benefits of Life Insurance
Life insurance can:
- Help your family meet financial requirements, since the insurer usually offers replacement of lost income.
- Provide liquidity to your family, helping them meet immediate costs, like medical bills and funeral expenses, and pay off debts.
- Provide peace of mind from knowing your family will be financially secure.
- Help you divide and distribute your estate among your loved ones in an equitable manner.
- Reduce and even eliminate gift and estate taxes.
- Form an integral part of an estate plan.
- Make certain estate planning options more effective, specifically those that come into effect only if you outlive a specific period. Your life insurance policy can in that case provide cash to cover additional taxes.
You can also use life insurance to reposition your assets. For example, if you do not need some of the funds in your IRA or 401k to cover living expenses during retirement, you can take out cash, pay income tax due, and invest the remainder in a life insurance policy.
If you purchase the life insurance policy under the name of an Irrevocable Life Insurance Trust, the proceeds of the policy will go to your loved ones after your demise and they will not have to pay any estate and income tax on those proceeds. You can also transfer an existing policy to a Life Insurance Trust but you will need advice from an experienced estate planning attorney to help with this process to insure it gets completed correctly.