The process of estate planning includes much more than just writing a Will. A good estate plan contains several elements, including a Will, Trust, Health Care Proxy and the assignment of a Power of Attorney. However, another tool that is often overlooked but can be a valuable asset to an estate plan is life insurance.
Obtaining life insurance is a necessary way to ensure that expenses are covered after the death of a loved one. This is certainly a benefit of any life insurance policy. Another benefit, not often considered, is the benefit to your estate plan.
Life Insurance Concerns
In the current challenging credit market, concerns have been raised about the solvency of life insurance companies and the chances of not receiving full policy benefits. This may be another barrier keeping both attorneys and clients from recommending life insurance as an estate planning tool.
There are several ways to evaluate the strength of an insurance company before investing in a policy. Generally, you will pay more in premiums to be insured by a stronger company. You and your estate planning lawyer may also evaluate a company’s economic capital. This involves doing research into whether analysts think the company has enough resources to meet their actual obligations. In addition, third parties like Moody’s and Standard & Poor evaluate life insurance companies and can provide useful information.
Advantages of Using Life Insurance
There are three types of life insurance: whole life, term life and variable life. Whole life does exactly as its name implies, covering you for your entire life as long as premiums are paid. Term life covers you for a specific period of time that is specified by the policy “term.” Variable life insurance has variable returns and a variable investment component because the policy holder, not the insurance company, determines where the appropriate portion of their premium is invested.
Regardless of the type of policy, life insurance benefits are paid directly to a beneficiary in full upon your death. Because of this, your beneficiary receives all assets immediately without having to go to probate court or pay taxes. Also, since the full policy amount is available upon death, life insurance is a good way to ensure a certain amount of money will be available at any time even if an unfortunate or sudden event should result in unexpected death.
For federal estate tax purposes, life insurance benefits are considered to be part of your estate. Fortunately, the beneficiary to a life insurance policy does not have to be a person. You can name an irrevocable trust as the beneficiary to your life insurance policy, in which case the money will pass directly into the trust and avoid all estate taxes.
Even facing an uncertain economic environment, life insurance can be a useful and effective aspect of your estate plan. Each type of life insurance policy contains differing levels of complexity and benefit, so it is important to consult with an estate planning lawyer when deciding which plan is best for you.
Bernard Krooks is a New York Elder Law and New York Estate Planning lawyer with offices in White Plains, Fishkill, and New York, New York. To learn more about New York elder law, New York estate planning, NY elder law, New York special needs planning, visit Littmankrooks.com.