When it comes time to create your estate plan you will likely incorporate a wide variety of estate planning tools and strategies into the plan to ensure that all of your estate planning goals and objectives are reached. One of those tools will likely be life insurance, particularly if you are relatively young and have yet to build up a sizeable estate. The proceeds of a life insurance policy can be used to provide for loved ones, pay off debts, or even cover the expenses of your own funeral and burial. Before you purchase life insurance though, it helps to know some life insurance basics. Toward that end, the following are descriptions of the most common types of life insurance options available:- Term life insurance — term life insurance is usually the simplest and least expensive type of life insurance. A term life insurance policy is purchased for a specific amount of coverage and a specific period of time, usually 10 to 30 years. The premiums are usually fixed for the period of the policy. The policy has no cash value and, therefore, cannot be borrowed against. When the insured dies, the policy pays out to the named beneficiary. If the insured outlives the policy, or there is a lapse in premium payments, no benefits are paid.
- Whole life insurance – this type of life insurance is purchased in a specific coverage amount for the lifetime of the insured. Premium payments are usually fixed, meaning they will not change. Along with the insurance benefits you also get a savings component and will earn dividends from the insurance company. The policy will have a guaranteed cash value.
- Universal life insurance – universal life insurance is also purchased for a specific coverage amount; however, you may have the option to increase the coverage amount later on if certain conditions are met. In addition, you may be able to change your premium payment amount if you have accumulated sufficient cash value in the policy. Your policy will usually earn an interest at a rate set by the insurance company. Cash value that can often be borrowed against is one benefit to choosing universal life.
- Variable life insurance – variable life insurance is also another variation of whole life insurance. Variable life truly combines life insurance with investing. Once you accumulate savings, those savings can be invested in stocks, bonds, or mutual funds. You also have premium flexibility with variable life, meaning you can increase or decrease the amount you pay in premiums as long as you have sufficient cash value in the policy to do so.
If you have additional questions or concerns about which type of life insurance is best for your estate plan, contact the experienced New York estate planning attorneys at The Law Offices of Kobrick & Moccia, by calling 800-295-1917 to schedule your appointment.
Anthony Moccia is an attorney and partner at The Law Offices of Kobrick & Moccia.His practice focuses on estate planning and elder law.He is a member of the New York State and Nassau County Bar Associations.He frequently presents free seminars on wills & living trusts to area residents and his seminars are said to be “informative, entertaining & easy to understand.”
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