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The Role of Life Insurance in Your Estate Plan

Most estate plans will include a will, advance directives, and possibly a trust. But what about life insurance? Most people don’t think of life insurance as a key part of an estate plan, but many of our clients would benefit from buying a policy. Below, our Honolulu estate planning lawyer explains how life insurance could possibly fit into your estate plan.

Life Insurance Can Replace Lost Income

One primary purpose of life insurance is to replace lost income in the event you or your spouse die. Life insurance is particularly helpful if you die very young because your family will lose out on decades of income.

There is another benefit to life insurance: quick access to benefits. Because life insurance does not pass through probate, it won’t get tied up for months or a year, like other assets will. Your family can quickly tap life insurance benefits to support themselves.

Life Insurance Can Pay Debts

Many people use a life insurance policy to cover debts that will need to be paid in probate. For example, you might leave everything to your three children. But you have some loans which need to be paid off first, such as a mortgage on your home. Your children could use life insurance to pay off the debts and inherit your estate free of creditor claims.

Life Insurance Can Pay Taxes & Burial Costs

These are expenses many people don’t think about, but they can reduce the value of your estate. Use a life insurance policy to cover these costs and provide peace of mind to your heirs.

Discuss Life Insurance with Your Lawyer

There are several different insurance products available, depending on your estate planning goals and needs. Term life and whole life are two common ones.

Term life insurance lasts for a certain number of years, e.g., 20 or 30. If you die before the expiration of the term, your beneficiaries receive a death benefit. If you outlive the term, then your heirs receive nothing.

Another type of life insurance is permanent life, which is an umbrella term for many types of policies. However, most permanent life policies last for the entirety of your life. When you pay premiums, a portion is put into a cash value account, which you can access while living. The premiums are usually higher than those for term life insurance, but it is an ideal option for some people.

You might also want to hold life insurance in a trust. Doing so can provide benefits to your and the beneficiaries, such as tax savings. You might also allow a child to continue to receive government benefits.

Discuss with Your Estate Planning Attorney

Life insurance is not for everyone. In consultation with your attorney, you might decide to instead save the money you would have paid for premiums. You could also invest it on your own, such as in the stock market. Still, it is worth considering whether a life insurance policy accomplishes certain goals.

Holcomb Law is committed to helping clients develop sensible estate plans that provide for their loved ones and offer peace of mind. Contact us today if you would like to schedule a consultation.