So you’ve decided to create an estate plan — that’s great! If you’ve read up on how to ensure your family is taken care of in the event that something happens to you, you know that having a well-thought-out estate plan is a critical step.
You’ve likely also discovered that life insurance plays a huge role in giving you peace of mind that the people who depend on you won’t have to struggle after you’re gone. But what, exactly, does this cash cushion cover when you’re not around? Let us explain.
One of the most important uses of life insurance is to cover basic living expenses.
How will your family make ends meet without your income? One of the most important uses of life insurance is to cover basic living expenses: food, utilities, paying off debt, etc. But don’t assume you have to earn a salary to need life insurance. Even if you are a stay-at-home parent, it may be prudent to consider a policy that can cover the added expenses that your absence would add: Full-time daycare, for example, costs on average more than $9,500 per year.
With life insurance, your family could continue making payments on a mortgage or may decide to pay the mortgage off so that there’s one less monthly expense to worry about. Either way, they won’t have to think about selling the home and disrupting their lives again.
Do you foresee your child or grandchild going to college one day? If you’re like many Americans, your answer is yes — so you’re probably taking steps to save for the expense. And college is only going to get more and more expensive as time goes on. Life insurance means the next generation will have a way to pay for it.
PREVENTING THE FORCED SALE OF TREASURED ASSETS
When your family has enough life insurance, they won’t need to make drastic decisions like having to sell treasured assets (such as the family homestead or business, a valuable collection or some other sentimental heirloom) to cover expenses.
FUNERAL AND OUTSTANDING MEDICAL EXPENSES
The average funeral can cost as much as $11,000. Add in any lingering medical expenses, and it’s easy to see why even families without a mortgage or dependent children still often opt for coverage.
If you expect to owe estate taxes at your death, life insurance as part of a trust can be a good way to help reduce your estate’s overall tax burden as well as help cover any estate taxes that need to be paid, all while passing along money to your heirs.
Sometimes it’s not about leaving money for needs, but leaving something people will remember you by — something permanent that represents the values you embodied in life. Whether you want to create a scholarship fund for your local high school, an endowment for cancer research, or a donation to a political organization, life insurance may be just what you need to make it happen.