Life insurance has long been a part of estate planning in the United States. Although life insurance does not need to be a part of every person's estate plan, it can be useful, especially for parents of young children and those who support a spouse or a disabled adult or child. In addition to helping to support dependents, life insurance can help provide immediate cash at death. Insurance proceeds are a handy source of cash to pay the deceased's debts, funeral expenses, and income or estate taxes.
To determine whether it makes sense for you to buy insurance to provide financial help for family members over the long term, consider these questions:
How many people depend on your earning capacity? How much money would your dependents need for living expenses? One way to determine this amount is to look at the earned income that you bring to your dependents on a regular basis. From that amount, subtract the worth of property they would inherit from you and any amounts that will be available from public sources or private insurance plans that already provide coverage.
Now, assess whether you need life insurance for short-term needs:
What assets will be available to take care of your dependents' immediate financial needs? You might leave some money in joint or pay-on-death bank accounts, or place marketable stocks in joint tenancy or register them on beneficiary (transfer-on-death) forms.
How long will it be before your property is turned over to your inheritors? If most of your property will avoid probate, there's usually little need for insurance for short-term expenses, unless you have no bank accounts, securities, or other cash assets. By contrast, if the bulk of your property is transferred by will and therefore will be tied up in probate for months, your family and other inheritors may need the ready cash insurance can provide. While a probate court will usually promptly authorize a family allowance or otherwise allow a spouse or other inheritor access to estate funds, it can still be nice to have insurance proceeds available.
Will your estate owe substantial debts and taxes after your death? Lawyers and financial advisers call cash and assets that can quickly be converted to cash "liquid." If your estate has almost all "non-liquid" assets (real estate, collectibles, a share in a small business, jewelry), there might be a significant financial loss if these assets must be sold quickly to raise cash to pay bills, as opposed to what they could be sold for later if there had been enough liquid money from insurance or other sources to meet all pressing bills. Obviously, if your estate has significant funds in bank accounts or marketable securities, you won't need insurance for this purpose. Fortunately, federal estate taxes aren't due until nine months after death, so cash to pay them doesn't have to be raised immediately.
Avoid Probate and Estate Taxes on Life Insurance
Avoiding probate. The proceeds of a life insurance policy are not subject to probate unless you name your estate as the beneficiary of the policy. If anyone else, including a trust, is the beneficiary of the policy, the proceeds are not included in the probate estate and can be quickly transferred to survivors with little red tape, cost, or delay. Except when your estate will have no ready cash to pay anticipated debts and taxes, there is no sound reason for naming your estate, rather than a person, as the beneficiary of your life insurance policy. (For a more detailed discussion of the advantages of avoiding the probate process, see Why Avoid Probate?)
Avoiding estate taxes. If you own your insurance policy at the time you die, the proceeds are included in your taxable estate. If your estate is large enough to face estate tax liability, your life insurance proceeds will be subject to estate tax. On the other hand, if you don't legally own your life insurance policy, the proceeds are excluded from your taxable estate. This can significantly reduce your death tax liability. For more information, see Transfer Your Life Insurance and Decrease Your Estate Tax.
If you are the sole owner of a business, how much cash will it need when you die? Do you want and expect that some of your inheritors will continue the business? If so, do you think there will be enough cash flow for them to successfully maintain the business? You may need insurance proceeds to cover any cash flow shortage of the business. Will there be liquid funds to pay estate taxes?
If your inheritors won't continue the business, the questions are different: How much is your death likely to affect the value of the business? Will there be enough cash to keep the business alive until it is sold?
To receive a quote for insurance, fill out the information below and we'll get back to you right away with a competitive Quote.
We provide three ways to get a Life/Benefits insurance quote.
1. Request a quote from us.
2. Contact us for a quote 508-958-4676 – Best Option if you have questions or special needs
3. Get an instant quote online for
As a member of SAN Group we have access to the following Carriers: