Choosing the right type of life insurance for your estate plan is important because it plays an integral role in your estate plan. If so, the type and amount of life insurance that your purchase is important and will depend on several factors. The first step in deciding which type of life insurance you need and how it fits into your estate plan is to learn more about your options. Toward that end, the Coral Gables estate planning attorneys at Stivers Law help you decide which type of life insurance is right for your estate plan.
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 “term”, or period, 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. A variation of traditional term life insurance, referred to as “non-level” term, does not remain the same for the life of the policy. Either the premiums increase, or the payout decreases over the life of the policy.
Whole Life Insurance
This type of life insurance is purchased in a specific coverage amount for the lifetime of the insured, hence the term “whole life.” 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. Premiums will be higher than an equivalent amount of term life insurance.
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. One disadvantage to universal life is that, unlike whole life, it has a termination age. Although the termination age is usually not until age 95 or 100, if you live that long your loved ones won’t be entitled to any death benefits.
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 if you have sufficient cash value in the policy to do so. Variable life insurance offers the possibility of greater gains from the investment portion of your premiums, but also the possibility of greater losses.
Final Expense Life Insurance
As the name implies, final expense life insurance is a specialized type of life insurance intended to help cover the costs associated with your death. It is only available to people of a certain age and usually terminates at a designated age. This type of life insurance is often used in conjunction with an Irrevocable Life Insurance Trust (ILIT) as part of a funeral planning component within an estate plan.
Choosing the Right Type of Life Insurance for Your Estate Plan
For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about incorporating life insurance into your estate plan, contact an experienced Coral Gables estate planning attorney at Stivers Law by calling (305) 456-3255 to schedule an appointment.
Justin serves as a member of the American Academy of Estate Planning Attorneys (AAEPA), a national organization comprised of legal professionals concentrating on estate planning. As a member of the Academy, he receives ongoing, comprehensive training on modern estate planning techniques.
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