Life insurance has many varieties of policies, and each variety has its pros and cons. This flexibility makes life insurance an ideal form of estate planning. Some of the different varieties and uses of life insurance are:
1) Term life insurance is a short-term policy, generally 5 to 10 years. Term life insurance offers a low monthly premium, although it does not accumulate a cash value, even though the premiums typically increase each year.
2) Whole life insurance has a death benefit for the life of the insured, and it accumulates a cash value you can borrow against. The premiums are initially higher than term insurance, but they become comparable as the insured ages.
3) Survivorship life insurance policies insure two lives, usually a husband and wife, and benefits are paid out after both insured persons die. The premiums are usually lower than a single-insured’s life insurance policy, and can be variable, universal or whole life insurance.
4) Universal life insurance has flexible premiums, an adjustable death benefit, and accumulates a cash value. Although the accumulation value can fluctuate over time, the policy offers significant tax advantages for the beneficiaries.
5) Variable life insurance policies accumulate cash value, but they are much riskier. The policyholder invests the cash value accumulated by the policy into an investment account of their choice. Although it can have a high return, it bears the risks of the market.
It is best to discuss your estate planning goals with a licensed broker to determine which type of policy best meets your needs to establish a plan for your beneficiaries.
The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.