Life Insurance Information
From an estate planning point of view, life insurance can play two roles. If you have not accumulated substantial holdings, insurance creates an immediate estate at death providing funds to meet the resulting expenses and taxes while guaranteeing an income for your family.
On the other hand, if you accumulated a sizable estate, there may be significant changes that will arise at death. Insurance is one means of providing the liquidity that may be needed to cover them.
Life insurance is an ideal financial vehicle since it matures at death. This is exactly when the funds are needed. The annual cost is reasonable and upon receipt, the proceeds are totally free of income tax.
There are two types of life insurance contracts:
Term insurance is temporary in that it terminates either at a specified age or a given date. Term plans that end at a given date often have renewal provisions allowing coverage to be continued for another specified period, usually ending at age 65 or 70. Term insurance is best used to protect temporary liabilities or commitments such as mortgages, university expenses, bank loans, etc.
Permanent insurance, on the other hand, is the best type of plan to protect long-term needs such as survivor income or estate settlement costs.
Group life insurance (which is usually term insurance) has all the attributes of personal insurance in the event of your death. However, your employer or association owns the policy; you are a group certificate holder, not a policyholder, and thus have no control over the contract. For this reason, it is generally recommended that a minimum of 50% of your required life insurance protection be personally owned, ensuring you have ultimate control over your program.
When determining the right amount and type of insurance you should own, consider the following:
- liquid and income-producing assets already available
- the amount of continuing income required by your survivors
- the age difference between spouses, if any
- life expectancy of spouses
- government and private pensions available
- income available for the purchase of insurance
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