Many people purchase life insurance through an employer sponsored insurance plan, and they do so almost as an afterthought. But what people may not realize is that life insurance can play an important role in estate planning, and is just one piece of the puzzle in a comprehensive estate plan.
While many plan for the proceeds of a life insurance policy to replace the income of the deceased, there are other financial considerations and objectives that can be accomplished with a life insurance policy.
Access to Cash
Since an insurance policy has a named beneficiary, it often does not go through the probate process (unless the estate is named as a beneficiary), which is the legal process used in settling an estate. Since probate can take several months, a life insurance policy can help provide faster access to cash to pay for burial expenses, debts, and other expenses that will come up quickly.
A life insurance policy can also be used as part of a buy/sell agreement in a business. A buy/sell agreement is a contract between business partners that specifies who can buy a partner’s share of the business upon a triggering event such as death. A life insurance policy can provide the funds necessary to fund the buyout from the deceased’s estate.
Preserve the Family Business
Life insurance is also a method that can be used to provide cash when an heir has a contract to buy a family member’s farm or another business upon their death. This is often used to keep the business, particularly farms or ranches, in the family.
Life insurance is just one aspect of estate planning, a comprehensive approach used to ease the burden of one’s passing on their family. Working with an estate planning attorney ensures that each piece of the plan fits together and works to meet the families’ goals.