Why Life Insurance Is an Essential Part of Any Estate Plan
When it comes to ensuring the stability and well-being of your loved ones, it’s essential to make the appropriate arrangements so that your family is protected in case of your sudden loss. If you have dependents, an effective way to do this is by putting together an estate plan that includes life insurance as part of your financial strategy. In this post, we outline several ways that life insurance can help to safeguard your assets so your family’s future interests are protected.
What Is Estate Planning?
If you want to preserve your property and distribute your assets according to your wishes after you pass, you need to set up an estate plan. The main estate planning document is your Last Will and Testament, which is used to allocate your assets and provide other directives after you pass.
The Role of Life Insurance in Your Estate Plan
Life insurance is a key component in the estate planning process. When you have a life insurance policy, your beneficiaries will receive a tax-free lump sum payment upon your passing. This provides financial security to those you love and preserves your estate by minimizing the impact of income tax, probate fees, and other costs that erode the value of your estate.
What Type of Life Insurance Policy Should I Include In My Estate Plan?
There is a range of insurance policies to choose from, but the type of life insurance policy you need depends on your stage in life and your purpose for the policy.
Couples With Minor Children
If you are a parent with a young family, your number one priority is to ensure your family’s financial needs are met after you pass. Term life insurance is ideal as you can buy a ten or twenty-year policy according to your needs. If you are a healthy young adult, insurance premiums for term life policies can be very affordable, depending on the coverage you wish to have.
Older Couples With Adult Children
If you are between 50 and 60 years old, life insurance is a good option for your estate plan, even if your children are fully grown and self-reliant.
Rather than a term life insurance policy, permanent life insurance may be a better option. You might not need as much coverage as a couple raising a young family, but you will still have costs that need to be covered after you pass.
The Benefits of Life Insurance for Older Individuals
Unlike cash, investments, and property that may be tied up in probate court for several months, life insurance is paid directly to your designated beneficiaries upon your passing. This lump sum payment provides liquidity for your family while your bank accounts are in probate. The benefit can also cover estate tax liabilities and other financial obligations that may otherwise have to be covered by family members.
Pay Off Debts
When you pass, you are still responsible for paying any income taxes on the income you earned up to the date of your passing. You may also have other loans, such as car loans or credit card bills, that need to be paid.
Pay Probate Fees and Other Legal Costs
While probate fees are reasonable, hiring a probate lawyer to administer the estate can incur hefty fees, which add up over time.
Funeral Expenses
Funerals can be expensive, so leaving a death benefit removes the financial burden on your loved ones of paying for your funeral expenses.
Gifts For Loved Ones
Many older individuals also choose to invest in a life insurance policy for the purpose of leaving a gift to their children. You might want to consider this for the following situations:
- With the high cost of real estate, you may wish to help a loved one with a down payment on a home.
- A university or trade school education can go a long way to securing a bright future for your grandkids, so consider a gift to cover their tuition fees.
- If you have family members who are struggling financially, gain peace of mind by ensuring their financial needs are met.
- You may also want to consider leaving a legacy in the form of a charitable donation to causes that are dear to your heart.
Let’s Talk About Life Insurance in Edmonton
As your financial advisors in St. Albert and Edmonton, we can help you with your financial planning and set up life insurance as part of your estate plan. We cover a wide range of services to help manage your financial affairs, so reach out today for a free consultation.
