It’s nearly always imperative to take a multi-faceted approach to estate planning as it involves the health and finances of multiple people. Ensuring that family and loved ones are taken care of in the way that benefits them most requires proper planning. One estate planning tool that is especially helpful is a life insurance policy.
Life insurance, much like a last will and testament, is recognized by most people as something used upon death. However, the benefits of a life insurance policy, the options available for it, and possible unexpected consequences are not always well known.
People often think of life insurance as income replacement for an individual’s dependents, and this is especially important for those who are a significant provider for their households. It is also important to keep in mind homemaking spouses, particularly those who are primary caregivers of minor or disabled children, as the expense of hiring caregivers, cleaning services, and food preparation might be a lot higher than the income of a spouse working outside the home.
Another main purpose of life insurance is to pay for burial funds. It is necessary to pay for burial or cremation, and our loved ones will have to pay for it if we do not plan a way to provide for this cost. It can be a painful experience for loved ones to realize that they need to come up with several thousand dollars to bury a family member when someone did not plan ahead for the cost of their own burial.
One great benefit of using life insurance is that its receipt is a non-taxable event, leading to another important purpose of life insurance: to offset liabilities from one’s taxable estate. Liabilities can result from things such as creditor claims, liens against property, or taxes accrued because of beneficiary status.
Tax liability can also result from taxes that may need to be paid on qualified retirement money upon receipt by beneficiaries. Although these taxes are paid from the retirement funds, life insurance can be used to equalize the amounts that are given to beneficiaries if some are receiving property that is taxed while others are receiving property that is passed tax-free.
Life insurance is often tailored to the individual who is purchasing it, and policies can include inexpensive add-ons covering long-term care or for minor children. Many times, life insurance proves to be a far less expensive way to help cover long-term care costs compared to independent long-term care insurance plans.
Insurance may either be permanent or for a fixed term.
To ensure that your life insurance policy fits with your estate planning goals and provides the best benefit in protecting and providing for your loved ones, life insurance planning should include your life insurance agent, financial planner, and estate planning attorney. Contact us at Wilson and Wilson Estate Planning and Elder Law, LLC at 708 482 7090 for our main office in LaGrange, Illinois or at 847 656 8958 for our Northbrook, Illinois office.