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Two Important Uses of Life Insurance in Estate Planning
From ezinsurance.com.au:
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.
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#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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