Deciding Whether To Include Life Insurance In Estate Planning
One of the goals of estate planning is to ensure your loved ones are provided for in the event something happens to you. Instead of or in addition to leaving behind an interest in real estate, stocks, or financial accounts, some make the decision to invest in life insurance. There are a variety of different types of policies available, in varying amounts, offering a wide range of benefits. The following provides basic information on some of the common options to consider before deciding whether to add life insurance to your estate plan.
Types of Life Insurance
The Insurance Information Institute (III) acknowledges that choosing a life insurance plan can be confusing, and offers guidelines for choosing a plan that best suits your needs. There are two basic types of life insurance:
Term Life Insurance
These policies are relatively inexpensive, and allow you to choose a life insurance amount and the period you want coverage. You may be able to renew at the end of your term, but the older you get the more expensive it becomes. Once you reach a certain age, or if you are diagnosed with a potentially life threatening condition, you will no longer be eligible. The III recommends term life insurance in the following situations:
- If you need life insurance for a period of time, such as if you have young children, or have just begun saving money.
- If you need a large amount of insurance to pay off debts, such as a mortgage, but have a limited budget.
Permanent Life Insurance
As the name implies, permanent life insurance covers you for as long as you live. Also known as cash value insurance, CNN Money advises that there are three types of permanent life policies:
- Whole Life: This combines the benefits of permanent life insurance along with those of an investment fund. You buy the amount of insurance you want, and a portion of your premium goes towards investments that build in cash value. You can eventually borrow against this amount, which is tax deferred.
- Universal Life: This combines the benefits of life insurance with a money market account, based on the current market rate.
- Variable Life: These are cash value policies tied to stocks or bonds, and do not guarantee a return on your investment.
The III advises that while these policies are more expensive, they do allow you tax deferred savings and the ability to borrow money, regardless of your credit. In the event of your death, any unpaid loan amounts are simply deducted from the policy.
Choosing the Estate Plan That Is Right For You
Life insurance has its advantages. To determine whether it is right for you, it is important to take an honest and thorough look at your assets and liabilities, as well as the needs of the loved ones you would be leaving behind. Call or contact Hancock & Associates, P.A. online to request a consultation with our experienced estate planning attorney in our Orlando or Tampa office to discuss your options.