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Home / Insurance / Why You Need A Life Insurance Policy

Why You Need A Life Insurance Policy

August 12, 2010 by Jack N. Alpern, Estate Planning Attorney

Many people without children believe they don’t need a life insurance policy. But beyond simply providing for children after a person’s death, life insurance can offer tax-free money to beneficiaries if it is owned in a proper way and be used to pay estate taxes after you pass away.  In that way, other assets do not have to be sold — sometimes at a loss — to pay those taxes.  Also, after death, life insurance pays out immediately and can cover burial expenses or provide instant cash to pay debts and taxes.

Consider the following benefits of a life insurance policy before you decide against one:

The immediate cash benefit. Instead of cashing in retirement benefits or trying to sell slow-moving assets such as real property or belongings, your heirs receive instant money to pay bills now.

Tax-free money. Your beneficiary won’t be liable for income taxes when your life insurance policy pays out.

Income replacement. If you die and are married with children, your spouse can pay for childcare expenses should they have to return to work. If the payout is large enough, they may not have to work and can continue to care for your children. In the case of the elderly surviving spouse, life insurance proceeds can ensure they continue to live in the style to which they’ve become accustomed .

Probate avoidance. If you don’t name your estate as the beneficiary of your policy, the insurance proceeds don’t go through probate.

Provisions for special needs children. You can name a special needs trust as the beneficiary of your life insurance policy and provide money for the long-term care of a handicapped or disabled child.

Estate tax reduction. If you transfer ownership of your life insurance policy to a special kind of trust, the trust beneficiaries will receive the policy payout without having to pay estate taxes.

A qualified estate planning attorney can help you decide whether or not a life insurance policy is a good estate planning tool for you. Give us a call today and set up an appointment to discuss your estate planning options.

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