Life insurance really isn't as frightening or complex as it seems. It's actually a fantastically useful and flexible estate-planning tool that can provide income-tax-free security for your loved ones. It can also provide liquidity to pay estate taxes, especially if your estate largely consists of assets such as real estate or a closely held business that you may be reluctant to sell to raise cash. (If the policy is owned by an irrevocable trust, the insurance payout can avoid estate taxes too.)
Most of us don’t much like insurance of any type. If nothing else, it means confronting and directly dealing with risk. And life insurance can be an especially touchy subject, since it means dealing with the topic of death (usually our own). Still, life insurance is neither as scary nor as difficult as we may think. Fortunately, the Wall Street Journal recently provided a basic rundown for the wary on how to go about life insurance.
Life insurance can be a powerful estate planning tool, because it is waiting to provide a potentially massive injection of liquidity into your estate at your time of death. It can mean the necessary income to provide support for your family, as well as pay off any debts, taxes and expenses you may leave behind. In addition, cash is king when it comes to paying estate taxes. This can be critical when your estate value is tilted toward illiquid assets like a family business interest.
Still, the type and amount of life insurance that is right for you will depend on your own unique circumstances and the purpose of the insurance.
Before you begin wading into the life insurance analysis process, take a look at the Journal’s rundown of the basics. Then, make sure you get the advice of an insurance professional to help you.
Reference: The Wall Street Journal (October 15, 2011) “Need to Know: Life Insurance 101”