We like to highlight all of the various tools that are utilized in estate planning on an ongoing basis, and with this in mind let’s take a look at life insurance. Life insurance is a foundational estate planning tool, and in fact the life insurance policy that is offered as a benefit in most workplaces is the first exposure that many people get to estate planning.
Your first policy is probably only going to need to be sufficient for you as a single person, but when you get married and someone is depending on your income to maintain his or her standard of living life insurance takes on an added level of importance. Of course when you and your spouse start a family, you have a whole added dimension to consider. You must evaluate your life insurance coverage to make sure that it is sufficient to provide for your children as well as your surviving spouse should you pass away unexpectedly.
Additional life changes such as divorce would result in the need to reevaluate your coverage and your beneficiaries. If you were to remarry a new set of circumstances would exist, and the resulting family dynamic can call for a life insurance review.
In addition to serving as a very useful income replacement vehicle, life insurance enters the picture for people who are partners in small businesses. Small business succession planning often revolves around the execution of buy-sell agreements. With these agreements insurance is taken out on all the partners, and when one of them passes away the proceeds are utilized to purchase that share from the estate of the deceased.
Another use for life insurance as an estate planning tool involve balancing inheritances. If you were to leave a valuable piece of property to one of your heirs, you may want to take out a life insurance policy or policies of equal value and make another heir or heirs the beneficiary to balance things out.