Is Whole Life Insurance Good for Estate Planning?

Thinking about securing assets and your family’s financial status doesn’t have to wait until your later years. In fact, the earlier your start planning, the better you can secure your assets and leave your family all they need to live comfortably when you’re gone.

A whole life insurance policy can help those looking to secure their estate and reduce fees, taxes, and more. Below, we’ll discuss how it can be done and who you can call for expert help.


What Is Whole Life Insurance?

Whole life insurance is a type of life insurance that is considered permanent. That means that it will remain intact for the duration of the policyholder’s life. Unlike other types of insurance, whole life insurance comes with a built-in savings plan, one that adds up with each premium paid.

The savings are known as the policy’s cash value and are kept separate from the death benefit received by beneficiaries upon the passing of the policyholder. The cash value can be used in a number of ways, including:

An addition to the death benefit

A tax-free loan

A full surrender for the whole cash value (minus fees)

While whole life insurance can be useful for a number of people, there are many reasons why some choose to go with term life insurance instead. Whole life insurance is costly than term policy and is not as easy to cancel as some other policies. Still, there is the option for the cash value, which could come in handy.


Life Insurance and Cash Value

When each premium is paid, the cash value of a whole life insurance policy increases. Over time, this amount can add up and collect interest, both of which can add extra security to assets. The cash value is accessible while the policyholder is still alive, giving them the opportunity to use it when finances are low, and investment opportunity comes, or if they have a particular purchase in mind.

Once policyholders pass, their beneficiaries receive the remainder of the cash value. The cash value first goes to the insurer, where they will subtract fees. The rest is given to the beneficiaries, giving them a tax-free amount that they can use to finalize the policyholder’s final wishes. The beneficiaries have a lot of responsibilities, which is why it’s important to choose them carefully.


The Importance of Beneficiaries

Beneficiaries are not the same for both life insurance and estate planning. Life insurance is kept separate from one’s estate, which is why it can be useful to offset certain costs. Life insurance beneficiaries are important, as they are the first ones to receive any of the policyholder’s securities.

Choosing a beneficiary will automatically give them the death benefit upon the policyholder’s death and any overage that comes from the cash value. This all happens before assets are disbursed, even if it’s left for someone outside of the family.

As long as a beneficiary for a life insurance policy is selected, the death benefit and the cash value are considered part of the estate. However, if there is no beneficiary, then the death benefit is added to the estate. That means that it will be taxed and passed through probate before being given to loved ones.

Besides failing to select a beneficiary, if the beneficiary of an estate dies before the policyholder, the death benefit will still go to the estate. Policyholders should make sure that their policy is always up to date and, if their beneficiary passes, they should select a new one so that they can keep more value in their estate.


Using Whole Life Insurance in Estate Planning

There are several ways that policyholders can use their whole life insurance while estate planning. From relieving debts to dodging taxes, policyholders can keep more value to their estate and pass it to their loved ones accordingly. Below, we’ll share some ways that life insurance can benefit your estate.


Use your Policy to Reduce Taxes and Fees

Estates are taxed, some assets up to 10%. That can dramatically reduce the value, which in turn means less for your loved ones. Keeping your life insurance benefit, your beneficiary will receive it upon your death and enjoy the total without taxes.

They can then take that amount and use it to reduce the reduction of your estate due to taxes and fees.


Use your Policy to Pay Down Debts

Debts are considered part of one’s estates, falling into the beneficiary’s lap upon your death. Debts are typically taken into account along with the estate, deducted from the total value before being dispersed according to your liking.

Using your life insurance benefit, you can reduce the number of debts that could take away from your estate, leaving your family more that they can use to relieve their cost of living.


Surrender your Policy for Cash Value

If you’ve had a whole life insurance policy for a considerable amount of time, you might be sitting on a high cash value. In that case, you can surrender your whole life policy, which would automatically give you the cash value.

Surrendering your policy means that you won’t have life insurance and that, you may have to pay taxes. However, you would only pay taxes on the interest collected and not the initial cash value. Surrendering your whole life insurance policy is one way to get a large investment quickly, using that to secure your assets or make other investments.


Let Sim Work to Secure your Assets

If a lot of these terms and concepts are new to you, you’re not alone. For help navigating your options and finding the best ones that suit your budget and goals, give Sim a call. She can customize a plan to secure your assets in no time, giving you the peace of mind you’ve always wanted and the financial protection you deserve.

It’s never too soon to start securing your assets, so let Sim work to maximize your security and leave your family with more financial security when you are no longer able to.


FAQs & Helpful Resources Regarding Life Insurance for Estate Planning


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