Estate planning takes several forms and strategies. Your goals, finances, assets, and beneficiaries determine the estate planning strategies to deploy. However, life insurance policies should complement most estate planning endeavors. Below are the top reasons to include a life insurance policy in your estate plan.
Paying Funeral Expenses
People have different preferences for funerals and burials. Your loved ones might struggle to pay for your last rites, especially if your estate lacks adequate liquid assets. Buy life insurance so your survivors can use its payout to give you a befitting sendoff without suffering financially.
Setting Estate Debts
Your estate is responsible for some of your debts after your demise. For example, your creditors might use some of your estate assets to pay for mortgage and credit card debts. Unfortunately, such debt settlements reduce the value of the assets your beneficiaries can inherit. For example, the mortgage company might repossess your house to recover their mortgage loan.
That won't be the case if you have life insurance. In such a case, the life insurance policy will settle the debt and let your beneficiaries fully enjoy their inheritance.
Like debts, some taxes also survive you and come out of your estate if you die. For example, your estate must pay your income taxes if you die before settling the current year's income taxes. Depending on your estate's size, the federal and state governments might also require payments of estate taxes. Again, you can use life insurance to pay the taxes posthumously.
Equalizing Estate Assets
Some assets are not easily divisible. For example, your beneficiaries might struggle to divide your real estate properties and businesses after your demise. Some beneficiaries opt to buy each other out instead. However, that arrangement is only possible if the beneficiary who wants to buy out the other person can raise the buyout money.
Say you leave your marital home to two children. One of the children wants to keep the house, and the other wants to sell it. The arrangement might fail if the child who wants to buy out their sibling doesn't have the necessary funds. If you have life insurance, the child can keep the insurance payout and let the other sibling keep the house.
The above are just a few examples of life insurance benefits to estate planning. Contact an estate attorney to help you create an estate plan that meets all your objectives.