In a general sense, life insurance can enhance your estate plan, and it can satisfy a couple of specific objectives. We will provide an overview here, but first, we will explain the two most commonly used forms of life insurance.
Whole Life
Whole life insurance is coverage that will pay a death benefit, and it also accumulates a cash value. There is a guaranteed rate of return, so it serves as an investment instrument.
This is permanent life insurance that will remain in place until and unless you stop paying the premiums.
Because of the savings component, the premiums for whole life insurance are relatively high. For a non-smoking woman in good health that is between the ages of 45 and 55, the monthly premium for $250,000 of coverage would be between $350 and $560.
Term Life Insurance
The other type of insurance that is most commonly utilized is term life. As the name would indicate, you take out this type of policy for a certain prescribed term that can be between 10 years and as many as 40 years in some instances.
This coverage is ideal for younger people that want to make sure that their families will be provided for if something unthinkable takes place. There is no investment component and the policy does not accumulate cash value, but the premiums reflect this limitation.
A 35-year-old woman can get a policy with a $500,000 death benefit for somewhere between $29 and $47 a month depending on their health.
When you look at that figure, you can see why there is absolutely no reason why anyone should take any chances. You put out a little bit of money every month that probably won’t even notice, and in return, you go forward with the knowledge that your loved ones will be protected.
Buy-Sell Agreements
In addition to the use of life insurance as a legacy booster and an income replacement vehicle, it can be used by small business partners. With the buy-sell agreement called the cross purchase plan, the partners huddle together to determine the value of a share in the business.
After they reach an agreement, they take out life insurance policies on one another that have payouts that will equal the value of an ownership share. When one partner dies, the proceeds are collected, and they are used to buy the departed partner’s share from their estate.
There is also an equity interest plan. The details are the same, except for the fact that the business as an entity will purchase the life insurance policies.
A buy-sell agreement can be used to facilitate exits for partners while they are still living, and the funding for the buyout could come from a different source.
Inheritance Balancing
Life insurance can also be used to balance inheritances if you have a closely held family business. To provide an example of how this works, let’s say that you own a popular, highly profitable brewpub, and your son is the manager.
Your only other child is a daughter, and she has never been involved in the business. You are going to be leaving the brewpub to your son, but you want your children to receive equal inheritances.
As a response, you can make your daughter the beneficiary of a life insurance policy with a benefit that will equal the value of the brewpub to balance the inheritances.
Attend a Free Webinar!
We go the extra mile to provide educational opportunities to members of our community through our webinars. These sessions cover the most important aspects of the estate planning process, and a lot of information is conveyed in a relatively short period of time.
There is no charge to attend the sessions, so this is a great way to invest an hour or so. You can see the dates if you visit our estate planning webinar page, and when you identify the one that works for you, follow the instructions to register.
Need Help Now?
If you already know that you should work with a Burlington, VT estate planning lawyer to put a plan in place, we can provide the assistance that you need. You can schedule a consultation if you call us at 802-879-7133, and you can use our contact form to send us a message.
Wendy now works with clients on estate plans, including Trusts, Wills, Powers of Attorney, and Advanced Directives.Wendy also assists clients with Medicaid Planning and helps clients to qualify for Medicaid assistance.Wendy is a member of the Vermont Bar Association and both the national and Vermont chapter of the National Academy of Elder Law Attorneys.
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