Life insurance is a financial instrument, and is a contractual agreement between the owner of an insurance policy and the insurance company issuing the contract. It is designed to pay tax-free money, upon the death of the insured, to the beneficiary of the insurance contract.
Why It's Important
Life insurance death benefits, payable to a beneficiary upon the death of the insured, are important as the death benefit serves to replace the economic value of the insured. The death benefit can benefit one’s loved ones, family, business interests, philanthropic desires or the estate.
A person trained in life insurance can explain the many different policies available and assist in selecting the one that best fits your needs.
Considerations in a Purchase
Who will be the owner of the policy?
Life insurance proceeds are included in the estate of a deceased if he or she has any incidents of ownership in the policy. Ownership by adult children or an irrevocable life insurance trust should be considered if there is an estate tax problem.
How much life insurance do I need?
This will depend on the need it is fulfilling. Amounts needed to fund a business transfer or to pay death taxes may be readily determined.
Calculating the value of a human life to a family is more difficult.
Take a closer look
How much life insurance do you need to meet your family's financial obligations? What is your future earning power? If your family income averages $100,000 and you are age 40, your future earning power is $2.5 million. We can help you calculate your needs or perform a family coverage review.
How should the premium be paid?
Sometimes the amount of the premium can be paid from current income. Other times it may be prudent to reposition other assets to be able to acquire sufficient insurance protection.
If the insured is a business owner or executive, a corporation may assist in paying premiums. Other times it may be better to have the corporation own the policy and use the proceeds to buy out part or all of the owner’s interest at death.
The information provided herein is not written or intended as tax or legal advice and may not be relied upon for purposes of avoiding any federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek specific advice from their personal tax or legal counsel.
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