Life insurance is a very important and useful element that is included in most estate plans. The most common use for life insurance is as an income replacement vehicle, and it is vital for people who have family members relying on their income. Even if you are relatively young, there are no guarantees and the well-being of your family is at risk if you do not have adequate coverage.
In addition to its value as an income replacement vehicle, life insurance is used in estate planning for other purposes as well, and one of these is to balance inheritances. We will explain what this means by way of example.
Assume that you are the owner of a successful small business, and the value of the business is by far your most significant asset. You have two children, a son named Doug and a daughter named Deborah, and you want to leave them equal inheritances. Doug works in the business, loves the job, and has expressed his desire to assume ownership upon your passing. Deborah has never worked in the business and has no particular interest in it.
A solution for scenarios like this would be to utilize life insurance to balance the inheritances. You take out a life insurance policy on your own life in an amount that is equal to the estimated value of the business, and you make your daughter Deborah the beneficiary. When you ultimately pass on, each of your children will receive an inheritance of similar value.
Enabling the balancing of inheritances is just one of the ways that life insurance can play a role in your estate plan beyond serving as a vehicle of income replacement. To learn more about this and comprehensive estate planning in general, simply arrange for a consultation with an experienced estate planning attorney.