A lesser-known estate planning strategy involves incorporating insurance into your estate plan. Including insurance in your estate plan is a way to provide your loved ones with a means of support and a way to safeguard assets from unexpected events and liabilities. It may help to offer immediate cash to beneficiaries, bypass probate, avoid the depletion of funds due to a large claim, or for a variety of other needs. We wanted to break down several of the life insurance options that people explore while designing their estate plan.
Life Insurance
Life insurance’s role in estate planning is critical in helping to provide financial security for your loved ones and ensure the transfer of your assets goes as smoothly as possible. With careful planning, you can strategically integrate life insurance into your estate plan. Consider focusing on these factors that can make life insurance a beneficial option for you.[i]
- Navigating estate taxes – Life insurance can be beneficial should you need funds to help pay federal and state estate taxes. This can often be a significant cost for larger estates. Having this as a backup can help avoid the possibility of having to sell off assets of value to cover the tax liabilities.
- Distribution strategies – Life insurance may be used to help balance the distribution of the inheritance to beneficiaries when dealing with assets that are challenging to divide up. It can also help you create a financial legacy through funding family members’ education or giving to charity.
- Financial security – Life insurance can be used as a means for replacing lost income for your family members, providing the ability for them to maintain their standard of living and cover various costs that arise, such as medical bills, funeral expenses, and other financial burdens and debts.
- Business succession – For business owners with partners, life insurance can help ensure the transition of ownership after an owner dies, as the proceeds can help fund the buyout of the deceased owner’s share, which in turn can help the business continue.[ii]
Long-Term Care Insurance
Long-term care insurance can be a beneficial component of your estate plan, helping to safeguard your assets and provide for your future care needs, should that arise. Consider these factors:[iii]
- Costs – Long-term care costs can be significant and deplete the savings and assets you intended to pass on to your heirs, so the insurance can help to avoid this obstacle.
- Policy features – Compare benefits amounts, coverage periods, elimination periods, and safeguarding against inflation to determine the policy that works with your budget and needs.
- Consider a hybrid policy – Some life insurance policies offer long-term care riders or are designed to combine life insurance coverage with long-term care benefits. They provide both death benefits and access to funds for long-term care costs.
- Consider appointing a healthcare proxy and establishing advance directives – A healthcare proxy and advance directives can help ensure your healthcare wishes are honored should you become incapacitated
Umbrella Insurance
Umbrella insurance can be an essential component of your estate planning strategy, providing an extra cushion of liability protection to safeguard your assets from large claims or lawsuits against your estate in the event of some catastrophic event occurring. Individuals of a higher net worth will often seek out such safeguard measures.[iv]
- How it works
An umbrella policy becomes effective when a liability claim exceeds the limits of your primary insurance, such as homeowners or auto insurance.
- Coverage
Along with covering injuries and property damage, umbrella insurance other risks not generally associated with standard policies. These include:
- False arrest or imprisonment
- Slander or libel
- Invasion of privacy
- Malicious prosecution
- Safeguard assets from creditors
Should you not have sufficient liability coverage to cover expenses, a court could force you or your estate to liquidate assets to pay damages. Umbrella insurance can help as a significant measure for safeguarding wealth against such actions.
- Types of individuals that may want umbrella insurance
Individuals who risk significant exposure to liability, such as a business owner, or landlord, or people who own a swimming pool, or trampoline, or something else where you can get hurt.
- Legal fees
Lawsuits can generate high fees for a legal defense. An umbrella policy can help cover such costs.[v]
Beneficiaries
Umbrella insurance helps to shield loved ones who are beneficiaries of your estate from the seizure of assets to pay large claims or having to use it for legal defense coverage, which could deplete it. It is an extra layer of asset safeguarding that allows for a more stable transfer of wealth to beneficiaries.
Important Disclosures:
This material contains only general descriptions and is not a solicitation to sell any insurance product nor is it intended as any financial advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
LPL Tracking #812066
Sources:
[i]How Life Insurance Works With Estate Planning | Progressive
[ii]Should You Add Life Insurance to Your Estate Plan? | Charles Schwab
[iii]Long-Term Care Insurance Explained - NerdWallet
[iv]Why Asset Protection Planning Is Crucial because Umbrella Insurance Isn’t Always the Answer - Estate & Elder Law Advisory, PLLC
[v]Umbrella Insurance - How it Works & What it Covers | GEICO
