What Is An Estate In Life Insurance?

Death is not always the most comfortable topic of conversation but it’s one that all families should have. There are ways that families can plan for any unexpected events, making sure that their assets and their loved ones are both taken care of.


Among these are life insurance and estate planning, both of which can be used to supplement each other.


The Uses Life Insurance

Life insurance provides policyholders with the opportunity to receive security for their families in the event of their death. Insurance providers will pay out a death benefit, which is there to help families deal with costs and keep things running.

Some types of insurance policies can also be used as an investment, not only paying out a death benefit but also growing in cash value over time. In these cases, policyholders can use their insurance for small loans when they need them by withdrawing from their policy.

These types of insurance policies are great for business owners, as they can enjoy access to tax-free loans when they need them, all while securing their family’s financial future. No matter which type of insurance is chosen, policyholders can also use it along with an estate to customize their coverage and keep their life’s earnings secure.


Choosing Beneficiaries

A critical part of securing any kind of estate or life insurance policy is choosing beneficiaries. Because estate planning and life insurance are two different things, policyholders will need to choose beneficiaries separately. This is something that might not be so obvious, as life insurance is not considered part of a holder’s assets.


Beneficiaries and Life Insurance

For any type of life insurance policy that’s chosen, policyholders will have to choose beneficiaries. These will be the ones that will receive the death benefit when the policyholder passes away, typically using that to secure assets, cover funeral expenses, and handle any financial stresses.

While the most typical beneficiary is the policyholder’s family (especially spouse or child), there is no regulation or limitation on who they can choose. Beneficiaries should be someone that will take care of assets upon death, even if it’s business partners that will keep a company afloat.


Beneficiaries and Estate Planning

Choosing beneficiaries while estate planning is a whole different ballgame, with policyholders able to pick and choose which assets go to which beneficiaries. This could be anything from real estate to collectibles to cash, all of which get passed on according to the estate plan.

Most of the time, those who have an estate plan in place will choose loved ones and friends as their selected beneficiaries, passing down things that are important to them. It can take time for the process to start, and beneficiaries are the ones that make sure all final wishes are fulfilled.


Estate Planning and Life Insurance

Life insurance policies can play a vital role in estate planning. A life insurance policy is not considered an asset and does not get distributed in the event of the death of the policyholder. For that reason, those seeking coverage are encouraged to select beneficiaries for their policy and create their last will and testament separately.

When using a life insurance policy with an estate, it’s best to do some calculations beforehand. That’s because the amount of the death benefit could be used as a way to offset costs required to maintain assets or pay off debts.

Each individual’s assets are different, and some of them come with a high cost to maintain or close up that could be too much for their loved ones to handle.


Lack of Beneficiaries

In some cases, no beneficiary for life insurance is named or the one named passes away before the policyholder. Without a selected beneficiary to receive the death benefit, there are two things that could happen.

  1. The death benefit will go toward the estate where it can be used to pay final bills or close costs on larger assets like homes, businesses, and more.
  2. If there is no estate planned and there are no beneficiaries named for assets or the estate, the death benefit would go to the person most closely related. This could be the spouse, the children, or the parents, depending on the policyholder’s situation.

It’s not just about the policyholder choosing a beneficiary. Beneficiaries also have to take action to make sure they receive the death benefit. There is a beneficiary designation form that must be completed and agreed upon.

If there is no form filled out prior to the death of the policyholder, the death benefit goes to the estate, just like the case where there is not a named beneficiary.


Taxes Matter

One thing to keep in mind is that, in the case of an estate, policyholders should be aware of taxes. Taxes are placed on the estate if there is a high value, one which isn’t offset with the death benefit. Since the death benefit can be substantial, adding it to an estate with a significant amount can increase taxes.

These taxes will have to be taken care of by the remaining family of the policyholder, taking away from the funds they need to relieve themselves from financial stress. If you’re the sole provider, the amount received as a death benefit could be detrimental to your loved ones, providing them the relief they need to keep your life’s assets secured.


Explore your Options

There are many life insurance policies and many ways that one can set up their estate. To do so most effectively, it’s recommended to contact a professional. Sim Gakhar is not only well-versed in life insurance policies but also investments, helping professionals of all types secure their life’s earnings.

Scheduling a call could help you find the answers you need and lead you to create a secure plan for your estate and your life insurance policy. Using them together, you can secure the future of your loved ones and make sure that all of your hard work goes into keeping your assets secure without burdening anyone.


FAQs & Helpful Resources Regarding Life Insurance for Estate Planning


Other Types of Life Insurance Products You May Want To Check Out





get quotes