Every comprehensive estate planning consultation incorporates a full insurance analysis of life, property, disability, and liability insurances.  Herein we’ll discuss 5 reasons you may need life insurance.

• To Replace Income

For most families, the replacement of income is the top reason life insurance is needed.  If a family income producer dies, that income is lost.  There needs to be enough life insurance to pay last bills, current debts, and future costs.  Be sure to factor in future expenses such as college tuition as well.

A general guideline is that you need an amount of insurance that after debts are paid, invested at 4%, the income can be used to pay ongoing monthly living expenses.

• To Replace Services

A stay at home parent provides services to the family that will have to be replaced at a financial cost if that parent dies.  There needs to be enough life insurance on that person to pay last bills and if invested at 4%, the income can be used to pay ongoing monthly expenses to replace her services.

• To Equalize an Estate

If not all of the children are involved in the family business, parents sometimes seek to provide an inheritance to those outside of the business.

Or, parents who are land rich, but cash poor, often purchase life insurance to equalize children’s inheritances.

In addition, providing immediate inheritances to a second spouse and children, from another marriage, is incredibly important to preventing family discord, anger, hurt feelings, and the disinheritance of your children.

• To Fund a Buy – Sell Agreement

Life insurance is used all of the time to fund by-sell agreements so that if a partner or member dies, the business has cash to buy out his or her share in the business.  The decedent business member’s family receives the cash in exchange for the business interest.

• To Pay Federal Estate Taxes

In certain cases, families buy life insurance to pay federal estate taxes if other tax avoidance techniques haven’t zeroed out the tax.

Co-Executor, PLLC is a member of the American Academy of Estate Planning Attorneys.

A comprehensive insurance analysis is an essential part of the estate planning process.  You may discover that you need more of the insurance you already have or that you’re insurance poor and need less insurance.  And, if you’re like most people, you’ll discover that you need insurance that you didn’t even know existed.

If you are not properly insured, you’re either wasting money or all of your estate planning will be for naught when your assets are seized because of inappropriate insurance coverage.

• Umbrella liability insurance is one of those insurances that many people don’t know exists, but that most people need.  It is also known as “personal catastrophic insurance.”  It sits on top of your home owners insurance and car insurance and raises the coverage to a million dollars or more, depending on your needs.

• Disability insurance is one of those insurances people don’t think about.  Typically, they only have disability insurance if their employer pays for it.  Disability insurance replaces a portion of your income if you are disabled, mentally or physically, and unable to work.

• Car insurance is required in every state, but the state mandated coverage may not be enough for you.  Be sure to include underinsured and uninsured motorist coverage to protect yourself.  Up to 25% of all drivers on the roadways do not have appropriate insurance.

• Renter’s insurance covers your personal property as well as provides liability protection.  This insurance is often overlooked, especially by young individual’s just starting out.  If there is a fire or a water pipe break, your personal property will be replaced.

• Homeowner’s insurance covers your property, structure, contents, liability, and alternative housing if your home is uninhabitable.

• Business interruption insurance covers your business and your income from the business in the event of an emergency.

• Life insurance replaces income for those who are dependent upon you and has many other purposes as well.

If you have questions about an insurance analysis, consult with a qualified estate planning attorney.

Co-Executor, PLLC is a member of the American Academy of Estate Planning Attorneys.