If you’ve never looked into life insurance, starting the process can be overwhelming. There are so many policies and options that it can be difficult to understand, especially when it comes to life insurance’s role in your estate.
To avoid any confusion and get you started on your journey to securing your life’s earnings, we’ll discuss what happens when your life insurance policy kicks in and some ways that you can make the most out of it.
While it sounds like a pretty simple concept, life insurance can get pretty complex. In its most basic sense, it’s a type of coverage that individuals can get that will pay out a lump sum to a selected beneficiary at the time of their death.
In most cases, the insured choose life insurance policies to help them secure their assets and avoid passing any financial burden to their loved ones. Many consider their spouse and their children, attempting to provide for them far beyond their time on this earth.
Throughout your life, you’ve probably made some large purchases. Whether it’s your home, land, or precious collectibles, you have things that you’ve gathered and earned throughout your life. All of those are considered your estate.
One thing that many don’t consider is other types of liabilities, like personal loans, debts, and other lines of credit. In the event of your death, your estate is equal to the total of your assets minus the amount that you own due to debts.
A will is something that everyone should create, as it details how their life’s earnings will be handled in the event of their death. Instead of leaving loved ones to scramble around and find out, individuals can put plans in place to make it easier.
To create a will, creators will need to select a power of attorney that will ensure wishes are fulfilled and beneficiaries that will receive. All assets must first go through probate before they are accessed by loved ones, so it helps to understand the concept of it too.
Probate is a process put in place to ensure the legitimacy of a will and the appointment of the power of attorney. It’s a legal process, typically held in a courtroom with all those involved present. Those with a will have a simple process ahead while those without leaving the state to distribute their assets.
The power of attorney (executor) named in a will plays an important role in the process of probate, overseeing that the entire process goes as planned and assets are distributed as the deceased wishes.
Now that some of the terms are clear, let’s take a look at what happens when the deceased has a life insurance policy. Most of the time, those with an estate have a life insurance policy, naming a beneficiary that will receive a lump sum upon their death. In this case, life insurance is separate from the estate, treated differently, and not taxed like an estate would be.
There are circumstances when no beneficiary is selected, including the death of the named beneficiary or the failure to name one. In this case, the death benefit becomes part of the estate, considered an asset, and taxed like the rest of them.
Keeping life insurance benefits apart from your estate is useful for many reasons. That’s why you should always name a beneficiary. You can name beneficiary at any time and change them too, filling out a few forms and providing the necessary information to appoint someone new.
Death benefits paid out by an insurance provider are not subject to taxes and are paid out at the time of death and do not have to first go through probate. All of these things are helpful for loved ones that are left to execute plans, giving them the financial comfort they need to secure their life and their loved ones’ life’s earnings.
A probate is a legal process that is overseen by attorneys. Because it involves a legal process, it comes with fees, some of which are flat and others that are a percentage of your assets. When one dies, their assets are totaled and debts subtracted, bringing about a smaller number already.
Using the new total, probate will further reduce the total assets, paying out less to loved ones in the process. Many of those looking to secure their assets try to avoid probate, tying up some of their investments in places where they are not taken into account.
One of these is a life insurance policy, which pays out upon death and avoids probate. It could be a way to offset debts and taxes, keeping more value in assets and ensuring that loved ones get the most out of it.
A will cannot be used to change life insurance beneficiaries. It can name individuals who will receive delegated assets, though it cannot change appointed beneficiaries. To do so, policyholders will have to contact their provider for further details, finding out what they need to do in order to change.
Typically, it involved filling out a few forms and providing details about the new beneficiary. Policyholders can do this when they want to change or in the event that the beneficiary they chose passes before their death.
Combining life insurance coverage and the last will is a great way to secure assets. Those who are looking for the best combination to secure their assets can get professional help from Sim. She has a unique professional background, working with financial planning and life insurance.
She can help you navigate your options and find the perfect fit to secure your assets and your loved ones without having to pay hefty fees or taxes. Schedule a call and see what Sim can do for you.
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