Even a well-planned estate takes time to settle – and your loved ones may struggle during that time. While your executor gathers documents and has property evaluated, your beneficiaries may still need to cover the household bills, mortgage payments and more.
Life insurance can be a critical resource during that time. The death benefit may help loved ones manage their immediate expenses without feeling the pinch – or being forced to sell property, cash in their investments or make other major financial decisions while they’re still grieving.
Money that bypasses probate
Your estate may be valuable on paper but have problems with liquidity. Most of your wealth might be tied up in a family business, rental properties or long-term investments. That can prove problematic if your estate is subject to federal estate taxes, which are typically due within nine months after someone’s death. If your estate doesn’t have the cash, your family may have to borrow money or sell valuables to pay.
One of the key benefits of a life insurance policy is that the proceeds are paid directly to the beneficiary or beneficiaries you name, rather than going through probate. That gives them immediate liquid assets that can be used for bills and estate taxes.
Life insurance can also help balance inheritances fairly. You may want to leave a family business to the child who works there while providing comparable inheritances to your other children. Naming those children as beneficiaries of an insurance policy can help balance their inheritances without breaking up or selling the business. The same approach can be used if you want to leave a child the family ranch, home or some other valuable asset that cannot be divided.
Life insurance works best when coordinated with your will, trusts and other estate planning tools. Used thoughtfully, it can give your loved ones financial support, flexibility and breathing room when they need it most. Talking with a experienced estate planning attorney about your goals for your estate and loved ones can make it easier to get the results you want.