I found this article on ezinsurance.com.au and would like to share it with my audience:

If you ever want to bore someone to death or make them run for cover, just bring up life insurance… trust me, just those two words seems to make people clam up and start looking at the clock. Despite the fact that we all know we are going to die some day, we just don’t like to think about it. And worse yet, we really don’t want to plan it in so much that we are going to actually plan on giving money away upon our death. But in reality, most people don’t actually buy “burial life insurance” if you can actually call it that. Life insurance has many more purposes and there are many more important reasons for purchasing it than just for a burial policy.

Many people don’t realize that life insurance plays a very important role in estate planning. Life insurance can help pay for estate taxes allowing heirs more time to make decisions on selling property. Life insurance can also help loved ones replace lost income. Let’s face it, we don’t have a crystal ball and we don’t know when we will die. It is possible that we will die prematurely and leave our spouses without our income. Ask yourself this question: if you weren’t here tomorrow, would your spouse be able to survive without your income without having to make drastic changes? Most people would have to answer that question NO! That’s where life insurance makes a big difference.

In addition to personal reasons, life insurance can be especially helpful for businesses that are partnerships and are concerned about the death of a partner. If one partner dies, the other partner can find themselves in business with the spouse or relative of the deceased partner. This can cause serious problems for the business. So, to avoid these issues, the business will take out life insurance out on each business partner. This type of life insurance funding is called business continuation insurance policies. This can also be done with an employee who is extremely important to a business and would put a financial burden to the business if that employee died. This type of policy would be paid for by the business and is called a key man insurance policy.

Life Insurance can also help plan for retirement. For people who have a spouse and will be retiring with a pension, life insurance can be used to help get the largest benefit from the pension without putting the spouse at risk. This concept is called pension maximization. Instead of Mr. Jones, for example, taking a lesser monthly benefit so that upon his death his wife would continue to receive a monthly benefit from his pension, Mr. Jones takes the life only benefit and then Mr. Jones takes out a whole life insurance policy for an amount that would provide that benefit that Mrs. Jones would be receiving in income from the pension upon his death. Instead of the income coming from the pension, Mrs. Jones will receive a check from the life insurance company that she will take to her life insurance agent who would assist her in investing it in something that would provide her the month income she would need.

These concepts are examples of what life insurance can be used for in addition for the tradition use of protecting your family if you died prematurely.

Life insurance plays a vital role in estate planning. This article uses examples to discuss common functions of life insurance in two different estate planning contexts. #1 Insurance proceeds support survivors if a support provider dies prematurely.

Example: Hal and Wendy are a young married couple with two small children. Both parents work and contribute to their respective 401(k) plans. They have little savings outside the plans. They recently made a 10% down payment on a home; the value of the property is now a little less than what they paid for it. The children attend day care during the day. Hal still has some outstanding college loans.

If Wendy dies in an automobile accident, Hal will be a single parent with the responsibilities of supporting himself and his children, taking care of his children, making the mortgage payments, and paying for child care. Without Wendy´s salary, Hal may be forced to make lifestyle changes such as selling the home and renting, changing to a less expensive day care, and forgoing extras such as going out to dinner and vacations.

The family´s situation would have been much better if Wendy had a life insurance policy on her life with a $250,000 to $500,000 face value. As Wendy was young and healthy, the payments would have been affordable. Hal could use the insurance proceeds to replace Wendy´s income, remain in the home, and maybe begin college funds for the children.

………………………

#2 Life insurance may be purchased to supplement the amount available to survivors at death.

Example: Joe and Sue married when they were ages 60 and 49, respectively. Both had been married before. Joe, a wealthy retired doctor, has adult children from his first marriage. Sue and her first husband did not have any children. After they divorced, Sue squandered most of the money she received in the settlement.

Joe´s children strongly opposed the marriage of Joe and Sue; one of them did not even attend the ceremony. It became clear to Joe that their major concern was that he would leave all his property to Sue, depriving them of the inheritance they anticipated. Joe has never been happier in his life and intends to make sure that Sue is well provided for at his death.

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