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Life Insurance as an Estate Planning Tool

Posted by M. Margaret Gonsalves-Sabola | Aug 23, 2018 | 0 Comments

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Life insurance works well as part of an estate plan because it is fairly easy to obtain and will provide support to a chosen beneficiary. Most estate plans, however, include other estate planning structures to compensate for some of life insurance's downfalls, discussed below.

Why Purchase Life Insurance?

Life insurance pays a lump sum of money to your chosen beneficiary when you pass away. All you have to do is apply for insurance and once the insurance is issued, pay the monthly premiums to the insurance company. It is a straightforward way to protect your family, especially if you have no other estate plan in place.

Companies offer many types of life insurance, including term, whole life, and universal life. Term life insurance covers you for a specific time period. If you pass away after the time period ends, the insurance company will no longer pay. Whole life covers you for your entire life and allows you to borrow against the policy, while universal life is similar to whole life but provides additional investment opportunities.

Premiums for term life insurance usually cost the same for each payment period in the term. In contrast, whole and universal life policies build value as you pay premiums over time. Term life insurance tends to be much less expensive than the other types because in most cases people live beyond the term's end, and the policy has no cash value unless the policyholder passes away during the term.

Why Estate Plan Beyond Purchasing Life Insurance?

Protecting your family should you pass away suddenly goes beyond purchasing life insurance. While life insurance has a low barrier to purchase and is easy to maintain, there are downsides. You can only select one beneficiary, and you must continue to pay premiums for the term or your whole life to remain eligible. For people who have medical issues or are already at retirement age, life insurance may be prohibitively expensive or they may be considered uninsurable.

Estate planning beyond life insurance gives you greater flexibility. A life insurance payout comes from an insurance company, but you may have your own money or property that will become part of your estate. Unlike life insurance, other estate planning tools such as wills and trusts allow you to give the assets you own to your relatives. You can select multiple heirs or beneficiaries, and you can customize who receives how much money or property. In short, if you have specific plans for the assets you own personally, make a complete estate plan that may include some life insurance.

To find out more about life insurance and estate planning, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.

About the Author

M. Margaret Gonsalves-Sabola

M. Margaret Gonsalves-Sabola is a civil and commercial litigation attorney and an accredited civil and commercial mediator. Margaret has over 21 years' experience in legal practice in the United Kingdom, Jamaica and The Bahamas.

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