A comprehensive estate plan is one that takes you from today through the end of your life and beyond. It should contemplate the protection and growth of assets throughout your lifetime as well as provide for loved ones after you death. Given the highly personal nature of estate planning, no two estate plans are even exactly the same; however, there are some common components, such as life insurance. If you are relatively new to estate planning, understanding life insurance and how the different types might fit into your overall plan will be important. When it comes time to decide which type of life insurance is best for your estate plan it is always best to consult with an experienced Missouri estate planning attorney; however, in the meantime it may be helpful to gain a basic understanding of the different types of life insurance available.
Life insurance works essentially the same way as any other type of insurance. The policy holder pays a premium for a specific amount of coverage. In the event the insured dies, the policy will pay out the coverage amount to the named beneficiary, or beneficiaries. There are two basic types of life insurance – term and whole life. Whole life can then be sub-divided into a number of different types of whole life insurance.
Term life insurance is 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 period of time, 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.
Basic whole life insurance is purchased in a specific coverage amount for the lifetime of the insured. 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.
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 earn 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.
Variable life is also another type 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 as long as you have sufficient cash value in the policy to do so.
If you have additional questions or concerns about whether or not you should add life insurance to your estate plan, and, if so, which type of include, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.
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