Life insurance serves as a source of support, education funding, death tax and expense coverage, funding for disposition of a business and even for a survivor’s retirement. This is what makes it so important to understand how you can use life insurance as part of your estate planning. Feel free to reach out to your Hart Insurance agent in Federal Way, WA with any questions and concerns you may have.
Life Insurance as Part of Your Estate
If you have a smaller estate, insurance ownership isn’t a significant tax-savings device. Here, your life insurance goals should be to take care of any beneficiaries who are financially dependent on you. However, if your estate is worth $2 million, life insurance is essential for tax savings.
Planning Objectives for Insurance
Life insurance is used in estate planning to pay off any debts, support your dependents and even to accumulate wealth. You can get term life insurance that covers you up to a certain milestone, such as your children finishing their education or the retirement of your spouse. However, many choose permanent insurance, typically whole life insurance, due to its flexibility in terms of building wealth.
Unlike term insurance, permanent life insurance policies do not expire. Consider your family’s needs and consult with your insurance agent to meet your specific goals. Here are the two categories of permanent insurance.
Whole life insurance. Use this for long-term goals, consistent premiums and wealth accumulation.
Universal life insurance. Use this for flexible premiums, death benefits and savings.
Types of Life Insurance Trust Arrangements
There are two types of life insurance trusts that can help preserve your wealth when your gone.
Revocable Life Insurance Trust. The trust is the beneficiary in your life insurance policy, and you keep the right to terminate the trust as well as maintain ownership rights. It’s recommended if you have a young family of modest means but substantial life insurance.
Irrevocable Life Insurance Trust. This policy excludes life insurance from the estate when the first spouse dies. Your spouse can be the beneficiary without having power over the principal, subject to approval by the trustees.