You probably already know that life insurance can protect your family if something were to happen to you. But you might not realize the many ways in which insurance can help you preserve your plans for the future – whether for yourself, the next generation, or those charitable groups you support.
Specifically, life insurance can potentially help you address several areas, including the following:
• Help in covering final expenses – The proceeds of a life insurance policy can provide immediate funds at the time of your death to pay for your funeral costs, your debts and your final income taxes.
• Transfer wealth (with potential tax advantages) – Some wealth transfer vehicles carry significant tax consequences. But the proceeds from life insurance are typically free of income tax, so if your death benefit is $1 million, your heirs will receive the full $1 million. (Consult with your tax advisor about all potential tax consequences beneficiaries might face.)
• Provide charitable gifts – You can use life insurance in various ways to support charitable organizations. One option is to donate a policy you may no longer need. Either you or the charity would continue paying the premiums, but the charity would become both the owner and beneficiary of your policy.
Alternatively, you could purchase a permanent life insurance policy and donate it to the charity, which could then use the policy’s cash value when you’re alive and receive the death benefit when you die.
• Help fund a revocable living trust – Depending on your situation, you might want to establish a revocable living trust as part of your estate plans. A revocable living trust helps you avoid the time-consuming, expensive and public process of probate. And, among other benefits, a living trust allows you to distribute your financial assets over time, and in amounts that you specify – which may be quite appealing, if, for example, you’d rather not give your children a large amount of money at once.
Life insurance can help fund your living trust – you just need to name the trustee (which may well be yourself while you’re alive) as the owner and beneficiary of the policy. However, you will need to consult with your legal advisor before creating and funding a living trust.
• Help cover long-term care costs – You may never need any type of long-term care, but if you do, you’ll find it quite expensive. It now costs, on average, more than $100,000 per year for a private room in a nursing home, according to the 2018 Cost of Care Survey, produced by Genworth, an insurance company. Medicare typically pays little of these costs, so the burden will fall on you.
To avoid using up your financial assets – or, even worse, having to rely on your adult children for help – you may want to purchase insurance. Some life insurance plans offer long-term care coverage, either through a special “rider” or by accelerating your death benefit, but you might also want to consider a traditional long-term care insurance policy.
As you can see, one of the most flexible tools you have is life insurance. Start thinking soon about how you can put it to work.