A growing number of people are discovering that life insurance can be a financial planning tool. Life insurance offers a way for you to provide for your family, protect your business, and make charitable gifts without reducing your estate.
Life Insurance Can Help with Estate Planning
A policy on your life can provide your heirs with funds to pay the expenses of settling your estate without dipping into your assets. It can also replace income that your family may lose as a result of your death. A life insurance policy is one way to ensure that money will be available to your heirs for their immediate or long term finanacial needs.
If you are the owner of a small business, life insurance proceeds can supply the funds to pay estate taxes and administration expenses, eliminating the possibility that the business will have to be sold to meet these needs. You also can use life insurance to fund a buy-sell agreement for the purchase of your business interests by other stockholders, partners, or your corporation.
Life Insurance Can Fund Charitable Giving
If charitable giving is among your priorities, a life insurance policy can be designed to benefit your favorite charity while allowing you to take advantage of a tax deduction for your contribution. There are several ways to do this. You could purchase a policy on your life and contribute it to charity. In most cases, you can claim a charitable deduction on your federal income tax return for your donation and any subsequent premium payments you make.
You also might want to consider funding a charitable trust that will pay you an income during your lifetime and provide a donation to a charity at your death. This arrangement won't reduce the assets your heirs will inherit if you purchase life insurance to replace the amount passing to charity.
Life Insurance can be Part of a Deferred Compensation Plan
Employeers often take advantage of life insurance to provide deferred compensation, typically to key employees. The employee is promised benefits at retirement or a lump-sum death benefit, should the employee die before retirement. Corporate-owned life insurance on the employees life provides the company with the cash to meet its obligation to the employee. With the split-dollar life insurance plan, the employee shares some of the cost.
If done properly, life insurance can be the perfect complement to your estate plan. If you do not have life insurance or just need to re-evaluate your current policies, please contact us.