What are the estate planning benefits of life
insurance?
Life insurance can protect your survivors financially:
You can buy life insurance to help ensure that your survivors don't
suffer financially when you die. You can protect their long-term financial
needs by planning so that they will have enough money to pay their
bills and live comfortably for years to come. You can also use life
insurance to protect your survivors' short-term financial needs. Because
life insurance proceeds normally don't pass through probate, your
loved ones will have enough money to pay their bills right away--they
won't have to wait until your estate is settled.
Life insurance can replace wealth that is lost
due to estate shrinkage:
Life insurance may be the number one method of replacing wealth that
is lost due to estate shrinkage. To ensure that the estate (money
and assets) you leave to your survivors isn't less than you intended,
you can buy enough life insurance to cover the expenses associated
with your death, such as taxes, fees, and other debts that your survivors
will have to pay.
Life insurance can be given to charity:
If you want to leave money to charity when you die, consider using
life insurance. Not only does life insurance allow you to make a substantial
gift to charity at relatively little cost to you, but there are certain
tax benefits as well. For instance, depending on how you structure
your gift, you may be able to take an income tax deduction equal to
your basis in the policy or its fair market value. Or, you may be
able to deduct the premiums that you pay for the policy. In addition,
gifts to charity may reduce estate taxes owed when you die.
Plan carefully if you expect to leave behind
a substantial estate:
Your survivors generally won't owe income tax on any life insurance
proceeds that you leave to them. However, they may owe estate taxes
if you leave behind a large enough estate but don't plan ahead. In
general, if you're leaving behind a taxable estate worth less than
a certain amount, your survivors won't owe estate taxes on a life
insurance policy that you leave them. But, if you intend to leave
an estate larger than that amount, you may want to consider the estate
tax consequences of owning life insurance.
In general, to avoid life insurance-related estate taxes,
make sure that you don't:
