No one likes to think about death, but it is inevitable for all of us. If you have a family, one critical element of Estate Planning is to protect your loved ones with a life insurance policy. Whether you choose whole life or term life depends on your personal circumstances. The same principles apply to the amount of your life insurance policy. The important factor to consider is that having a life insurance policy in place provides a number of advantages for your family in case you are no longer there to take care of them.
Tax Advantages
If you have substantial wealth, or even if your estate is modest, you have probably considered how you can transfer your assets to your children and other loved ones with a minimum of hassle and tax considerations. You may have considered a will or a trust as a means of distributing your estate. Both tools represent excellent means of ensuring that your possessions are distributed as you wish after your death, however, they may not protect your family against estate taxes.
However, a life insurance policy provides much needed cash to your policy’s beneficiaries. If you purchase a term life insurance policy, it’s often possible to obtain a large policy of several hundred thousand dollars for a premium that’s less than one hundred dollars per month. Best of all, the proceeds from a life insurance policy are tax free.
Loss of Income
If you are the major breadwinner in your family, in addition to the trauma of losing you, your family will also suffer the loss of your income, which could cause a major blow to your family’s quality of life. Your family could lose its home and your children may have to give up on pursuing a college education. Medical bills may pile up It may even become a struggle to put food on the table.
A life insurance policy can prevent a tragedy from becoming a catastrophe. While no policy can make up for the loss of a loved one, having a life insurance policy in place can ensure that your family will be able to carry on financially. Your mortgage will be paid; your children will be able to attend college, and your spouse won’t be left to worry about where the next meal will come from.
Covering Final Expenses
If you die suddenly, your family may be left at a loss about how to cover your final expenses. Funerals cost thousands of dollars even for simple services. There are also income taxes and other debts that you may leave behind. These bills can add up – taking a sizeable chunk out of what might otherwise be a substantial inheritance for your heirs.
With a life insurance policy in place, you can pre-plan your funeral arrangements to relieve your loved ones of that burden during a time of profound loss. You can designate part of a larger policy to cover funeral expenses, or you can purchase a separate life insurance policy specifically for that purpose. The proceeds from a life insurance policy can also ensure that your family won’t have to foot other bills you might leave behind.
See Also:
- The Differences Between Term and Whole-Life Insurance
- Term vs. Whole Life Insurance – What Should You Choose?
- What are “Life Insurance Settlements”?
- How to Choose a Financial Advisor
- Getting Life Insurance Over 50 Is Easier Than You Think
Recommended by Amazon:
- The Retirement Savings Time Bomb . . . and How to Defuse It: A Five-Step Action Plan for Protecting Your IRAs, 401(k)s, and Other Retirement Plans
- What Most Life Insurance Agents Won’t Tell You
- Protect and Enhance Your Estate: Definitive Strategies for Estate and Wealth Planning
- The Objective Guide to Estate Planning and Life Insurance
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About the Author:
Jeff Noble has been consulting families on their insurance needs for over 14 years. His articles mainly appear in insurance blogs. Find out more about insurance in Alberta, visit the link.
Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net
