Life Insurance Types and Their Place in Estate Planning
You can use life insurance to fund your estate planning goals for your family, your business, and your charitable giving. Different kinds of life insurance coverage can provide options that can protect what is important to you.
A Maryland estate planning attorney can help you incorporate your existing policies and additional coverage into your estate plan. Here is a brief discussion of some life insurance types and their place in estate planning.
Term Life Insurance
Term life insurance is an inexpensive way to provide cash for your loved ones when you die so they can pay off the mortgage, go to college, or replace the income you currently contribute to the family. You might not have $500,000 sitting in a savings account, but a relatively small monthly premium could generate lump sum proceeds to your family upon your death.
You can think of term life insurance like rent. You do not own the policy, and it does not have a cash value, but as long as you keep paying the monthly premiums, you have the coverage.
You could make your estate the beneficiary of the policy or name a specific individual to receive the proceeds. Also, you can name more than one person to receive the proceeds, either as a primary beneficiary and successor beneficiary or to each receive a designated percentage of the policy proceeds.
Permanent Life Insurance
Some permanent life insurance policies (sometimes called whole life insurance) guarantee that your coverage cannot get canceled as long as you pay the premiums. Some of these policies include a promise that the premiums will not go up, regardless of your age.
You might be able to borrow against or withdraw from the cash value of the policy. The terms of these policies can vary, so be sure to read the fine print.
Key Person Protection Insurance
If you own a business that relies on a key employee to generate revenue, getting key person protection insurance could help cover the lost income until you can find and train a replacement for the deceased or disabled key employee. This policy could help keep a business afloat, which is particularly important if your business is a significant part of your estate.
Related: 4 Estate Planning Secrets of the Wealthy That You Can Use Too
Equalizing Your Estate When You Have a Substantial Asset
Life insurance can be a way to equalize your estate among your heirs if you have a large asset that is not conducive to division, such as a real estate parcel or a business. If you want to leave the large asset to one child, for example, the other child might feel left out. Life insurance can prevent the perceived unfair treatment of your loved ones and avoid the need to liquidate the business and split the proceeds among your heirs.
Also, life insurance can equalize your estate if you have a blended family. If you already promised children from one relationship certain things, children from the other relationship can feel unfairly treated. Life insurance can make sure that all of your intended beneficiaries receive your bounty.
Charitable Giving Through Life Insurance
You might want to support a charitable organization through your estate but lack the resources to do so. There are several options for using life insurance to accomplish charitable giving through your estate. You might make the charity a beneficiary, designate the charity as the policy owner while you continue to pay the premiums, or make the life insurance part of your living trust.
The best way to use life insurance in your estate planning will depend on your situation. A Maryland estate planning attorney can help you create an estate plan tailored to your goals and needs. Contact Steve today.
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