Estate planning involves several key factors, not the least of which is having life insurance to protect your family from financial turmoil after your demise. It can have major implications for your family at a hard time when they might also be faced with a number of problems including probate fees, taxes and squabbling over assets with other relatives. An estate plan is made to protect and allocate your wealth after death.

Financial planning and estate planning are very different yet intertwined. A quality financial plan covers budgeting, savings and ventures. It may involve debt reduction and quite often also focuses on retirement. An estate plan, on the other hand, is a prearrangement of the financial and administrative considerations that should take effect after death. Fundamentally, it’s a post-mortem extension of one’s financial strategy.

Life insurance is universally thought to be an important facet of a sound estate plan for most people. For dependents who relied upon the deceased for a livelihood, it provides income. For heirs of high-wealth individuals, a life insurance trust is made to exclude its value from an estate, thereby decreasing taxes. An estate plan without an insurance provision may lack liquidity, particularly if your assets are not liquid.

There are numerous types of life insurance. Whole life insurance policies do not just provide a death benefit, but also may be borrowed against or withdrawn from during one’s life. Term life is the least difficult, least expensive type of insurance. It has a set expiration date, no investment account and pays out a specific amount to the designee upon death of the insured. Premiums are generally substantially lower because, whenever the term is over, the coverage ceases, whatever the health of the insured.

Permanent life includes whole, variable and universal versions. These involve a death benefit while supplying a tax-deferred cash account. Benefits can include right of early withdrawal, receipt of dividends, preset premiums and also the ability to manage and invest cash via multiple accounts. While riskier, permanent life polices offer more flexibility and don’t expire, as term policies do.

An alternative choice ideal for those approaching retirement, or not desiring the funds in the future, is an annuity. There are both “fixed and variable” annuities. A fixed annuity provides a regular stream of income for the retiree or their heir(s). Funded either by a lump sum or payments, a fixed annuity offers a regular payout, while a variable annuity will not, but may offer higher returns. In an annuity, money grows tax-free until dispersal, at which time the earnings are taxed like regular income for the person that invested funds. However, for heirs, as with any other life insurance plan, this inheritance is subject to federal, state and local guidelines regarding inheritance taxes. This type of life insurance also enables wealthier individuals to hold assets in a tax-deferred state and also safeguards them from litigation.

Those who are married, have young kids, own a business or possess a large estate should carry life insurance coverage. The amount of the policy depends on income, savings, investments, time to retirement, number of dependents and inflation.

While estate planning is essential for wealthier persons with a lot at stake, people of limited means also stand to really benefit from a sensible plan. Locking in retirement income, providing for dependents upon death and distributing assets as intended are all accomplished with an estate plan. There exists a mountain of info about estate and financial plans, life insurance and annuities online. However, it is suggested that you talk to a professional estate planner. Their competence and experience are intangibles that no amount of Internet research can match.

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