Gregory S. DuPont
What You Should Know about Life Insurance
Part of protecting your loved ones when you pass away is making sure that you have a proper estate plan in place. Another aspect is making sure that the right amount of money is available to carry out your goals for their futures. Life insurance has helped many people provide for their loved ones in the way they had envisioned.
Who can benefit from life insurance?
Many different types of people can benefit from having adequate life insurance coverage. Here are a few of the most common groups:
- Business owners. If the value of all of your accounts and property is more than the lifetime exclusion amount at your death, estate tax may be due. Life insurance can provide your loved ones with cash to pay the tax. This cash can be extremely helpful if your accounts or property would be difficult to cash in or sell to pay the tax.
● Parents with young children. A life insurance policy can help parents cover the costs of raising their children after they pass away, alleviating the financial strain on their guardians. If the deceased parent was the family's main source of income, life insurance can also support a surviving parent.
● Anyone caring for a disabled family member. With life insurance, you can provide funds for continuing care of family members with long-term disabling health conditions. But if they are currently receiving or eligible for government assistance in any way (such as Medicare), then be extra careful about how much money is transferred from your policy -- because that could disqualify them from receiving those benefits too!
● Charitably inclined individuals. Charities are always in need of funds to continue their important work. A life insurance policy can provide the perfect solution by funding your charitable endeavors without taking away from other accounts or property that you may want to leave behind for loved ones when it comes time to pass on ownership.
● People facing a large estate tax bill at death. If the value of all of your accounts and property is more than the lifetime exclusion amount at your death, estate tax may be due. Life insurance can provide your loved ones with cash to pay the tax. This cash can be extremely helpful if your accounts or property would be difficult to cash in or sell to pay the tax.
Importance of the Beneficiary Designation
If you have a life insurance policy, it's critical that you complete the beneficiary designation in a way that matches your intentions. Here are some samples of what you can expect when you list certain categories of beneficiaries.
- No beneficiary. If you don't fill out your beneficiary designation before death, then the money will be distributed according to policy agreements' default rules. This could mean proceeds either go back into the family or go through a costly probate process.
- A minor as beneficiary. The money from a life insurance policy could be left to your minor child or grandchild if you have one. But since they are not legally able to control their funds, there would need to be someone who can hold onto them until the beneficiary reaches adulthood (18 or 21 depending on the state). At this point, he/she will receive full ownership of the funds, and is free to do with them what they wish.
- An adult as beneficiary. While an adult can receive the money from the life insurance policy immediately, this approach may still not be ideal. The money may be spent on anything the beneficiary wishes after it has been received. It's also possible that an ex-spouse could take it, or a creditor. Depending on the individual, the money may not last long.
- A trust as beneficiary. This option allows the money from the life insurance to be paid to the trustee of the trust along with instructions for how and for whom the trustee is to use the money. The beneficiary will eventually receive their inheritance after all expressed wishes assuredly happen. Additional provisions can be added to the trust to increase protections against creditors, divorcing spouses, and predators, and to ensure that the trust beneficiary benefits from the money.
- A charity as beneficiary. A named charity as a beneficiary implies that the death benefit will be paid out to the cause immediately after your death. For do-gooders, this is a great way to assist a worthy organization while you still live.
Call us today at 614-389-9711 to schedule an appointment and discuss your estate plan. If you already have life insurance, we can review the beneficiary designation to make sure that it fits your ultimate goals.
Learn about more ways you can use and protect your life insurance policy by reading our Consumer's Guide to Estate Planning in Ohio.