Thursday, March 18, 2010

Estate planning and life insurance coverage

As we all know, life insurance is a very important and effective tool for minimizing risks and assuring your family with the necessary financial power in special circumstances. And of all things, life insurance plays a very important role in a family estate planning as it can affect it in two different ways.

Analyzing your life insurance needs

The most common connection between life insurance and estate planning is probably the actual need for it. Life insurance can assure your family with the necessary income replacement or other immediate costs that can affect mortgage loan payout or even some of your important assets. It also provides emotional comfort and peace of mind, giving you and your family the confidence and security no matter what. And things like that are really important these days.

Analyzing the practical application of your life insurance

The second aspect of life insurance in estate planning is often overlooked but nevertheless is as important as the first one. Life insurance can be used to provide additional asset leverage and security, which is especially useful if you have an unsettled mortgage loan on your property. For example, in cases when IRA or 401k isn't needed to finance your retirement plan you can use them for investing into a life insurance policy. And if the policy belongs to an Irrevocable Life Insurance Trust, then the funds will be transferred to your family excluding income and estate taxes. In contrast, keeping your funds in the IRA or 401k won't free you of the said taxes and this will take out much money from your funds when needed.

However, do not rush with purchasing cheap whole life insurance just to secure your estate planning. It's a matter of combining your actual insurance needs with additional security requirements, rather than a simple tool to assure your family with a definite mortgage payout. Your life insurance needs should be met without any compromise in the first place, and then you have to think about estate planning application of your policy. Do not sacrifice really important benefits just to get an additional security with the policy as it will cost you too much money and give nothing in return.

If you want to get a policy that will carry all the necessary benefits to you and your family it's always better to consult with an insurance advisor or expert first. It can be your insurance agent or an independent expert that will be able to outline your requirements and find a policy that will suit all of your needs. If you need cheap life insurance, there will be a certain set of options and benefits, and a whole another set of options and benefits for those who can manage to spend more money on life insurance coverage. It's always more effective and much easier to plan and tailor a new insurance policy rather than changing a policy that you have already purchased. So if you need something special from the insurance company define your needs right away or you will have hard time adjusting the coverage to your needs afterwards.


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