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Do You Need Life Insurance?


Life insurance has long been a part of estate planning in the United States. Although life insurance does not need to be a part of every person's estate plan, it can be very useful, especially for parents of young children and those who support a spouse or a disabled adult or child. In addition to helping to support dependents, life insurance can help solve several other common estate planning problems by:
  • Providing immediate cash at death. Insurance proceeds are a handy source of cash to pay the deceased's debts, funeral expenses, and income or death taxes. (Federal estate taxes are due nine months after death, so cash to pay them doesn't have to be raised immediately.)

  • Avoiding probate. The proceeds of a life insurance policy are not subject to probate unless you name your estate as the beneficiary of the policy. If anyone else, including a trust, is the beneficiary of the policy, the proceeds are not included in the probate estate, and can be quickly transferred to survivors with little red tape, cost or delay. Except when your estate will have no ready cash to pay anticipated debts and taxes, there is no sound reason for naming your estate, rather than a person, as the beneficiary of your life insurance policy.

  • Reducing death taxes. When an insured person does not legally own his or her life insurance policy, the proceeds are excluded from the insured's taxable estate. This can significantly reduce death tax liability of the insured's estate. Obviously, though, this benefits only those whose estates are large enough to face death tax liability in the first place.

Having indicated some of the reasons life insurance can be desirable, let us again emphasize that simply buying some is not an adequate way to plan an estate.

People who have no minor children or financially strapped dependents may not even need life insurance. Those who decide to purchase insurance should know exactly why they are buying it, the best type of policy for their needs and, of course, should buy no more than they need.

The purpose of this newsletter is not to give legal, insurance, tax or financial advice. The purpose is to stimulate thought for our clients and those professionals we network with. One should always consult with a qualified professional prior to implementing any strategy. If you are an insurance professional receiving this newsletter or know of one, please contact our office to introduce yourself and your services to us. We are always seeking to grow our referral network and expose quality professional services to our client base.

The loan professional that has made this information available specializes in providing financial solutions for those buying, selling or refinancing real estate.

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