Estate planning, like life insurance, helps provide security for your loved ones when you pass away. After you’re gone, your family will have to manage expenses related to your estate, and life insurance can help ease some of those financial obligations during a difficult time. In this article, we’ll help you understand the benefits of life insurance for estate planning and what type of policies make sense for different estate planning scenarios.
What is estate planning?
Estate planning refers to planning the distribution of your assets among your loved ones when you pass away. “Estate” doesn’t just mean the place you live, but refers broadly to everything you own, like your car, home, belongings and financial accounts—including life insurance. Factoring in life insurance while dividing your assets among your beneficiaries can make it easier to plan for their financial future after you’re gone.
How Life Insurance Can Help With Estate Planning
Life insurance can make it easier to decide how to distribute your assets during estate planning. Here are some estate planning scenarios in which having life insurance can be helpful:
Paying estate taxes: If your loved ones inherit your home when you pass away, they’ll likely be responsible for any estate taxes. Life insurance benefits can help pay these taxes, so you’ll be reassured that your beneficiaries will be in the right financial position to inherit your property.
Final expenses: When you pass away, your loved ones will have to decide how to allocate funds for final expenses like a funeral, debts or any final income taxes. These expenses can be paid for with life insurance, making sure your family won’t be dealing with financial strife on top of their grief.
Estate equalization: If you expect to have multiple beneficiaries to your estate, your assets may be difficult to divide equally. Having life insurance can help fill in financial gaps to ensure your estate is distributed evenly among your beneficiaries.
Business expenses: If you own a business, life insurance can help your family and business partners cover costs related to running and maintaining it after you’re gone.
Financial arrangements from divorce or child support: If you are divorced, life insurance can make it easier to plan for the continuation of recurring payments like alimony or child support in the event of your death.
What types of life insurance are best for estate planning?
The two types of life insurance most commonly used for estate planning are term life insurance and permanent life insurance. Each has certain benefits depending on your estate planning needs.
Term life insurance is designed to only provide coverage for a specified period of time, typically a 10-, 15-, 20-, 25- or 30-year term. This may be the better option if you only want your policy to cover your estate until you reach a certain age, or if you plan to pay the majority of your final expenses, estate taxes and any inheritance you leave through savings or other financial arrangements.
Permanent life insurance may be the better option if you want the security of coverage that extends for your entire lifetime, and if you plan for the majority of your final expenses, estate taxes and inheritance to be paid by life insurance.
SelectQuote is Here to Answer Your Questions About Estate Planning and Life Insurance
Estate planning is a complicated process, but having the right life insurance policy can make it much easier. SelectQuote’s experienced licensed insurance agents can answer any questions you have about life insurance for estate planning. We search highly-trusted carriers in just minutes, finding you the right fit for your needs so you can make sure your loved ones are covered.
