Life Insurance as an Estate Planning Tool
By: Nike Thorpe
The Henssler Financial Group Position Paper

Protecting one's assets and loved ones from financial burden after one's death is a major concern for our clients. When reviewing your estate plan, one way you can provide for your beneficiaries is through life insurance. Basically, life insurance is the payment of a sum of money to beneficiaries, upon the death of the insured. If you own a business or support a spouse, young children or elderly parents and their financial situation would be severely impacted, chances are you need some life insurance. Life insurance can also provide liquidity needed to pay estate taxes.

Providing Support for Dependents

Life insurance is not for everyone. If the financial situation of your survivors would be severely impacted by your premature death, you should definitely consider life insurance. Many factors affect how much life insurance you should have in place. These include owning a home, marital status, dependent children, owning a business and so on. But how much insurance should you purchase? You should not purchase more insurance than you need, yet, trying to determine how much life insurance you should have is not so simple. You should consider the following major areas of concern:

• How many dependents do you have?
• How much money would be needed to cover short-term expenses after death, such as funeral arrangements, taxes and debts?
• How much money would be needed to maintain your family's lifestyle over the long run after taking into account property that they inherit from you, any benefits from Social Security, scholarships and other income?

Avoiding Probate

Life insurance proceeds pass by beneficiary designation. Thus, if someone other than your estate is named as the beneficiary, the proceeds of your life insurance policy will pass outside of probate. This can be helpful in providing an immediate source of liquid funds to your beneficiaries.

Estate Taxes

If your estate is large enough to be subject to federal estate taxes, keeping your estate taxes as low as possible is probably a major concern. The proceeds of any life insurance owned by you in your own name are included in your taxable estate and are subject to estate taxes (depending on the total value of your gross estate). If someone else owns the insurance policy on your life, then those proceeds are not considered part of your taxable estate. Another option is to form an irrevocable trust and designate the trust as the owner and the beneficiary of your life insurance policy. If set up properly, proceeds owned by the trust should not be included in your estate and should not be subject to estate taxes. We recommend that you speak with your estate-planning attorney about who should own the policy — you, someone else or an irrevocable life insurance trust.

What does The Henssler Financial Group recommend?

When you have determined the amount of coverage you need, the next step is to decide what type of insurance you should purchase. With the different insurance products on the market, you should speak to an insurance agent and shop for the best rates available. At The Henssler Financial Group, we believe that life insurance should be purchased to cover costs, or to replace income if the insured were to die prematurely, not as an investment vehicle. Our general recommendation is to buy term life insurance rather than whole life insurance. As most people get older, their need for life insurance either decreases or is eliminated completely. Therefore, a term life policy, which is less expensive than a whole life policy, provides life insurance coverage only for the period of time the coverage is needed.

Again, to ensure that you are fully aware of the best estate-planning options for you, speak with your attorney. For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.