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Life Insurance Should Be Part of an Estate Plan

Published February 4, 2013

Life insurance plays an important part in your estate plan, especially if you have young children or a spouse or family member with a disability who depends on you for support.  Life insurance can be especially helpful in providing immediate cash at death, which is often needed for funeral expenses and to pay the debts of the decedent.

In determining how much life insurance you need, you should consider both the long-term needs and short-term needs of the people who depend on your income.

To determine the long-term needs of your dependents, consider how much earned income you bring to them each year.  Subtract from this the value of any property you will pass down to them, and help that other family members, such as your children’s grandparents, can be expected to give.  Also include in your calculations what Social Security survivors and dependents benefits will be available, as well as any pension plan that will help provide support.  In determining what support your children will need, consider how long it will take them to become economically self-sufficient.  If your children are already working or in college, they will need less support than young children would.

Short-term needs are also important to consider.  In the event of your death, do you have assets that will be available to your loved ones immediately, for instance through a joint or pay-on-death bank account?  If your estate contains significant liquid assets, then short-term needs are more easily addressed.  However, if much of your property is not easily converted to cash, then life insurance can fill the gap.  For instance, you would not want loved ones to have to sell real estate at a loss to cover short-term expenses.

Determining what, if any, life insurance you need is an important part of creating a comprehensive estate plan, which is best done with the counsel of an experienced estate planning attorney.

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