Chances are good that you own one or more life insurance policies. Whether you purchased a policy as part of a group offering through your employer or you went out and bought one on your own, you likely understand the basic function of a life insurance policy—to provide financial security to a family or to loved ones in the event of your death. While this is the basic function of a life insurance policy, it can do much more. Consider the following information that you may not know about life insurance:
- You can purchase term or whole life. Term is simple with a set benefit amount while the various whole life options provide an investment option as well.
- Life insurance proceeds are paid out almost immediately without the need to pass through the often lengthy process of probate.
- Life insurance proceeds are not taxed
- You can typically name more than one beneficiary
- You can purchase a policy that has as its sole purpose the payment of your funeral and burial expenses. If you elect to do this, you may wish to create a trust and name the trust as the beneficiary of the policy and then direct the trust to pay the funeral and burial expenses.
- A life insurance policy can also be used to fund estate tax expenses. If you know that your estate’s value will exceed the lifetime exemption amount then purchasing a life insurance policy may be a good idea. The policy will provide instant funds to cover the taxes so that your beneficiaries do not have to sell any estate assets in order to pay the taxes.