Whole Life Insurance and Estate Planning

It’s never too early to start estate planning. Creating a plan for your last wishes and deciding what will happen to your estate is one way to ensure that your family is taken care of when the unexpected happens.

One integral part of planning one’s estate is considering the items and monetary value that’s left behind to secure loved ones. Many of us have assets and debts, both of which are taken into account. Below, we’ll take a look at whole life insurance and how policyholders can use their policy to get the most out of their estate planning.


What is Whole Life Insurance

Whole life insurance that’s considered permanent. Unlike term life insurance, whole insurance provides coverage for the duration of the policyholder’s life, helping provide financial help for one’s assets and family.

Apart from offering a death benefit upon the passing of the policyholder, whole life insurance also offers a cash value that comes with a fixed rate of interest. As premiums are paid, this cash value grows, giving policyholders an opportunity to further grow their investments.

Life insurance is not only beneficial because it pays out a lump sum to beneficiaries, but also because it’s not taxed. Plus, families get access to the death benefit upon the death of the policyholder, able to skip probate and handle any expenses involved in finalizing the policyholder’s life.

We’ll go into more detail about how to use whole life insurance when estate planning but first, we’ll take a look at cash value.


A Look at Cash Value

One of the key things that separates whole life insurance and term life insurance is the cash value. The cash value of whole life insurance acts as an investment feature, allowing policyholders to build it up over time by paying premiums.

Cash value is accessible to policyholders, giving them a tax-free option to access cash. They have options to withdraw directly, take out a loan, and even surrender their policy to receive their entire cash value (minus a few fees of course).

When it comes to planning one’s estate, the cash value is a solid option, one that, after death benefits and fees, will go to the beneficiaries. As long as there are beneficiaries named, the policy will remain exempt from taxes and the entire value is rewarded.

Failure to name beneficiaries means that both the death benefit and the cash value will count as part of the estate, where it will then be counted as part of the assets involved in the estate and therefore, taxed.


Whole Life Insurance and Estate Planning: What you Need to Know

Many of those working to secure their estate often leave out life insurance from their planning. However, a well-planned life insurance policy could help policyholders make the most out of their assets. When using whole life insurance along with your estate planning, you could enjoy several benefits.


Relief From Debts

Throughout one’s life, they likely invested in several things, including a home, a car, or a business. Because those are large investments that are paid off over a long period of time, they can require continued payments if one is to suddenly pass.

Leaving behind debts for one’s family can lead to financial stress and make it more difficult for them to maintain, putting assets at risk for defaulting or getting sold off to keep up with payments.

A life insurance policy could relieve the debts one has, giving the family the tools and finances they need to stay afloat.


Relief From Taxes

When one passes, their assets are taxed before they are awarded to their loved ones. In some cases, taxes can take away 5% to 10% of the estate’s total, which can add up when the estate’s value is high. The death benefit received from a whole life insurance policy can help reduce the hit taxes take on the estate, leaving more of it to the family instead.


Relief from Fees

Upon one’s death, their estate has to go through probate. It is at this time that fees are incurred, leaving the family with what is left afterward. A whole life insurance policy is not counted as part of the estate and is therefore left out of probate.

Using the death benefit received from a whole life insurance policy, families can take steps to reduce the hit from fees, keeping more of the value in their loved one’s assets and making sure they have enough to live comfortably in the event of their death.


An Investment Opportunity

Apart from providing relief when one is gone, the cash value that comes with whole life insurance provides a unique investment opportunity. First of all, the cash value is not taxed, even if withdrawn. The interest is relatively low, which is why taking out a loan against the cash value is a great opportunity.

Policyholders can use a cash value loan to pay down debts, invest in business opportunities, or keep afloat if times are hard.

The policy can also be surrendered, in which case the policyholder will no longer be covered. In the event of a surrender, the remaining amount after surrender fees is given to the policyholder, allowing them to use that to invest or to relieve the financial stresses they are experiencing.


Secure your Finances, Today

Understanding all of the options for estate planning and creating the best setup for your financial situation can get confusing. That’s why it’s recommended to work with a professional, one like Sim. Sim offers her clients a custom-built plan to secure their finances using a combination of securities.

She knows all there is to know about life insurance, estate planning, and investments, creating a unique financial security net for each client. She helps them secure what they have now and leave it to the ones they love tomorrow.

To see how a combination of securities could work for you, give Sim a call. Planning your estate doesn’t have to be confusing or costly, and with Sim, you’ll learn how.


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