LIFE INSURANCE AS AN ESTATE PLANNING TOOL
June 4, 2020
Estate planning allows individuals to get their financial affairs in order before death. Some of the most well-known estate planning tools include:
Advance health care directives
However, life insurance can also be an extremely effective estate planning tool. There are three primary kinds of life insurance:
Whole life insurance – Whole life insurance provides insured individuals with a death benefit and investment component. It remains in effect for the life of the policyholder as long as premiums are paid. Whole life insurance can be advantageous because the cash value of the policy is permitted to grow untaxed while it remains in effect. However, as whole life insurance policies are effective as long as all required payments are made, their premiums tend to be higher than other types of life insurance.
Variable life insurance – Variable life insurance is a form of whole life insurance that permits an insured individual to allocate a portion of his or her premium to an investment account. However, this investment option tends to make variable life insurance riskier than other types of life insurance.
Term life insurance – Term life insurance provides a substantial death benefit for a relatively low premium, making it an attractive insurance option. Term life insurance is selected for a specific time period, so it is often used by individuals who know how long they’ll require coverage. Following the expiration of the selected period, coverage at the previous premium rate ends, and the policyholder must either forgo coverage or accept further coverage under new conditions. In addition, if a policyholder passes away during his or her term, then related death benefits will transfer to a beneficiary.
Life Insurance Trusts
A great way to incorporate life insurance into the estate planning process is via the creation of a life insurance trust. Life insurance trusts allow insurance policyholders to shield their insurance proceeds from taxation, and this enables benefits to pass directly to their beneficiaries without estate tax consequences. However, two drawbacks of life insurance trusts are:
A life insurance trust can’t be revoked, and
A life insurance trust can’t be altered following a policy’s placement in the same.
The benefits of life insurance trusts, though, tend to outnumber the drawbacks, so most people should consider incorporating life insurance into their estate plans.
California Estate Planning Attorneys
If you’re looking for personalized service by an experienced estate planning attorney, then Rodney Gould is the lawyer for you. When you come to the Law Office of Rodney Gould, you can rest assured that you’ll receive responsive, individualized counsel. By choosing the Law Office of Rodney Gould for your estate planning needs, not only will you stabilize your future, but you can rest assured that we’ll make the estate planning experience as easy and pleasant as possible. You can connect with us by calling us or by filling out one of the contact forms on our website.