A lot of people who do not have estate plans fail to take action because they do not have a significant store of resources to pass along. If you are single and no one is depending on you, this is understandable, but there are reasons why everyone should have a plan in place.
This being stated, if you are married, an income replacement vehicle is a must. The necessity is magnified if you have children, and life insurance can fit the bill.
Term Life Insurance
One of the two most commonly used types of insurance is term life. As the name would suggest, this type of coverage remains in place for a certain prescribed term. You decide on the length of the term when you get the policy.
Term life is typically used as a relatively short-term income replacement solution, so few people will obtain coverage for the maximum term. The insurance has no cash value as long as you are living, and this is negative on the one hand, but the premiums are quite low.
To give you an idea, a super preferred (very healthy) 40-year-old female would pay an average of $282 a year for $500,000 of coverage for a 20-year term according to Nerd Wallet. For a male, the average cost is $334 annually.
Clearly, the odds are in the insurance company’s favor when someone takes out a term life policy when they are relatively young. At the same time, what is the value of your family’s well-being if something were to happen to you? It is not worth the risk when the coverage is so affordable.
Whole Life Insurance
The other type of insurance that is most widely utilized is whole life insurance. When you pay the premiums, a portion is dedicated to accumulating a cash value. After you have paid into the policy sufficiently, you can take a loan against the cash value or withdraw the funds.
Since it has value as an investment vehicle, the premiums are much higher than term life insurance premiums. For a very healthy 40-year-old woman, the average annual premium is $5,937 for $500,000 of coverage, and the figure is $7,028 for a man of the same age.
Inheritance Balancing
In addition to the income replacement utilization and the death benefit as a legacy enhancer, life insurance can facilitate inheritance balancing.
To explain through the use of a simple example, we will say that John has a thriving construction business, and he has two children. His daughter has a business degree, and she has helped John run the business throughout her entire working career.
John’s son decided to go in a different direction. His daughter is going to inherit the construction company, which is his most valuable piece of property, but John wants to leave equal inheritances to his two children.
To balance the inheritances, he could make his son the beneficiary of a life insurance policy that will pay an amount that is equal to the value of the construction business.
Buy-Sell Agreements
Partners in small businesses can use buy-sell agreements to ensure a smooth and fair succession process after the passing of a partner. With the cross-purchase plan, the partners take out life insurance policies on one another. The proceeds will equal the value of a share in the business.
After the death of a partner, the proceeds will be collected, and they will be used to purchase the deceased partner’s share from their estate.
This type of agreement does not necessarily have to revolve around the use of life insurance. The partners can agree on a buyout price to allow for retirement or an exit for some other reason.
Attend a Complimentary Seminar!
If you would like to learn more about the estate planning process, we have some great opportunities coming up in the near future. Our attorneys are conducting a series of seminars, and they are being offered on a complimentary basis.
This is a great way to invest a little bit of your spare time, and in addition to the educational value, you will have a chance to connect with our firm. You can see the dates if you head over to our seminar page, and when you identify the session that works for you, follow the simple instructions to register.
Ready to Act Now?
Our doors are open if you have decided that you would like to work with a Westport or Glastonbury, Connecticut estate planning lawyer to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.