Estate planning doesn't have to be a complex undertaking. For example, life insurance is a normal, everyday thing that can be a very valuable part of an estate plan. For more information about life insurance plans and how they fit into an estate plan, read on.
Understanding the Two Life Insurance Methods
It's easy to get confused about these two life insurance types but they are simple to understand. They both can be used as part of your estate plan, but one of them is only useful for a short period of time.
Term Life Insurance
As the name suggests, this form of insurance covers a certain period. The term can vary. The cost may rise as the covered individual ages, however. With term life, the policy expires on a given date. If the covered person passes away within the term, a certain amount is paid. This type of insurance is best for certain populations including:
- Those needing coverage to pay off a mortgage
- To cover children
- To cover older people
The biggest advantage to term life insurance is the cost as it is often a lot less expensive than whole life. Depending on the plan, some term life plans can convert to whole life when it expires with a guaranteed rate.
Whole Life Insurance
This is the traditional form of life insurance and is meant to cover someone no matter how long they live. The earlier you buy this type of coverage the better the cost.
Using Life Insurance in Your Estate Plan
This is an excellent way to fund an estate plan. The plans are often affordable with monthly payments and are easy to deal with. You can name a beneficiary to inherit the funds in the policy upon your death. Generally, you can divide the beneficiaries any way you wish. For instance, you can leave 50% of the policy to your spouse and 25% each to your two children.
The thing that makes life insurance so great for estate purposes is that it is automatically exempt from probate. The policy does not need to be mentioned to the lawyer when the will is filed because it is not part of the probate court's interest. That allows the beneficiaries to be paid as soon as the insurance company can process the payment.
Let an estate planning law firm guide you through the process to choose and use life insurance in your estate plan.
