Some people that know they should have an estate plan do not take action because they feel that they have insufficient resources. This is understandable on the surface, but if you are in this position, you could use life insurance as an income replacement vehicle.
Life insurance can also be used to fill the gap or provide an abundance if you have assets, and we will provide some insight here.
Term Life Insurance
Term life is insurance that does not have any cash value if the triggering event never takes place while the policy is in place. It is called “term” insurance because it remains in effect for a particular length of time.
For example, when you are 35, you may take out a term life insurance policy that will stay in effect until you are 55. An actuary table will be used to determine the premium amount based on your life expectancy.
The average cost for a 35 year old female with a $500,000 death benefit is $18 for someone that is in excellent health, $22 for an individual with good health, and $29 for average health. For a male, the figures are a few dollars higher.
Since the premiums are so affordable, this is the ideal income replacement vehicle for younger families. There is really no reason to take chances when it is so easy to make sure that your loved ones would be okay financially if the unthinkable was to take place.
Whole Life Insurance
Whole life insurance provides a death benefit, and it also serves as an investment vehicle. When you have this type of coverage, a portion of your premiums will be set aside as an interest-bearing savings component.
After a certain point, you can withdraw all or some of the cash value, and you could alternately take a loan against it. Because of the fact that a percentage of the premiums will be available to you, the premiums are much higher for the same level of death benefit coverage.
A male that is 35 years old that is obtaining $250,000 worth of whole life coverage would pay between $282 and $432 a month according to a popular financial website.
Buy-Sell Agreements and Inheritance Balancing
In addition to its value as an income replacement vehicle, there are some other ways that life insurance can be useful from an estate planning perspective.
Small business partners have to prepare for succession after the death of a partner. This can be done through the utilization of a buy-sell agreement called the cross purchase plan.
The way that it works is the partners will take out life insurance policies on one another that are equal to the agreed-upon value of a share of the business. When one partner dies, the proceeds are collected and they are used to buy the deceased partner’s share from their estate.
Life insurance can also be used for inheritance balancing. Let’s say that you operate your own business, and you have two children. Your daughter decided to help you run the business after graduation, and your son went in another direction.
When you plan your estate, you want to provide for each of your children equally, but you are going to give your daughter your share of the business. As a response, you could make your son the beneficiary of a life insurance policy with a benefit that is equal to the business share.
Attend a Free Seminar!
You are here because you are looking for information about estate planning, and you can really take your knowledge to another level if you attend one of our upcoming seminars. The sessions are chock full of useful information, and they are being offered free of charge.
You can see the dates if you visit our seminar page, and when you identify the one that works for you, follow the instructions to register.
Need Help Now?
If you are ready to go to the source and work with an attorney to put a plan in place, we are here to help. We have estate planning offices in Glastonbury and Westport, so you can choose the location that is most convenient.
You can schedule an appointment at either location if you call us at 860-548-1000, and you can fill out our contact form if you would prefer to send us a message.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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