A life insurance policy is an important component of your overall financial plan, but it also represents a key aspect of your estate planning. Because of the fact that funds tied up in your life insurance policy can be transferred relatively easy to your beneficiaries after you pass away and on a tax-free basis, this is a popular tool for helping to accomplish your estate planning goals.
One of the biggest challenges in relation to this, however, is that many people may be under the impression that their workplace policy covers them sufficiently. There are many different myths surrounding the use of life insurance, including that you don’t need life insurance if you are single with no dependents, that life insurance is too expensive, or that the insurance provided as an employee benefit is sufficient to cover your needs.
Most financial plans require a strong foundation of life insurance as well as other strategies to accomplish risk management. This also ties into your estate plan because you cannot just worry about what assets will be transferred to your loved ones after you pass away but you must carefully plan for who will make decisions for you and what assets can be used to support you if you become incapacitated during the course of your life. Many employers offer group life insurance that is usually equal to one year of your salary either at a low cost or for free.
One of the biggest challenges with this group life insurance policy, however, is that if you retire, are fired or resign, you lose coverage. Furthermore, this often contributes to underinsurance because it would only allow your family to receive one year of your salary in most cases.
Read the fine print of your group life insurance policy because many people can benefit from using a life insurance policy that is ten times their annual income and might even consider more advanced estate planning strategies such as an irrevocable life insurance trust. If you have more questions about this process, schedule a consultation with an estate planning lawyer in Pasadena.