I am not an insurance salesperson. However, I often give my estate planning clients one common piece of advice – get life insurance if you can. This is typically easier for my younger clients, but for my older clients, the importance of having life insurance is greater.
Here’s the reason for my advice: First, life insurance passes outside of the probate estate (for a refresher on what is included in your “probate estate,” see this blog post). This means that your loved one will receive a check without an estate being opened or finalized. Often, my probate clients who have lost loved ones have already received their life insurance check before they ever even come into my office to see me to probate a will or settle an estate.
This can result in a tremendous burden being lifted. While your loved one is still obviously grieving the loss, your loved one does not have to be concerned with paying funeral expenses, medical bills, or even a mortgage payment, for example. This is especially true if you do not have joint bank accounts. If an estate has to be opened and settled for your loved one to receive their inheritance, they will not get that money for at least six months (and sometimes even one year). Also, spouses are required by law to pay the funeral expenses and medical expenses of the deceased spouse. These bills can sometimes wipe out savings. Additionally, if you pass away with debt, some savings accounts and other assets are included in your probate estate. Your loved one may not inherit anything if your estate assets are needed to pay your final debts.
Many people opt to forego life insurance in exchange for passing on retirement accounts like 401Ks and IRAs. While this is certainly an option, your loved one may not have near instant access to pay your final expenses. Depending on whether your surviving spouse is your heir or your children (or someone else), there may be restrictions on the use of the funds. Importantly, and the second reason why I recommend life insurance, is that life insurance is passed on tax free while your beneficiary will be responsible for paying taxes on withdraws taken from retirement accounts.
Furthermore, if you are a business owner, and especially if you are in business with a spouse, life insurance can ensure the survival of your business.
Finally, I have started recommending life insurance policies that contain long-term care riders. If there is ever a need for you to enter a long-term care facility, you can use those funds for that. I have a couple of clients who are in moderate-to-nice assisted living facilities who have told me that they would not be able to live there had they not purchased long-term care insurance years ago. People are living longer, and medical care is getting more expensive.
The purpose for purchasing these products is not necessarily to pass on a large inheritance to your loved one. In my opinion, these products alleviate stress and potential burden on your family members (whether that means at death or in the event you can no longer care for yourself). Do not hesitate to contact me if you would like to be referred to an insurance professional to find out more information. I am not being paid to promote life insurance, but I feel strongly about these products, and I believe that it is an important part of the estate planning process.
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