While it can serve multiple purposes, life insurance can be a complicated and emotional topic. However, appropriate life insurance coverage may provide you with peace of mind, knowing that those you care about should be financially protected after you die or other financial goals you set will be met.
The many uses of life insurance
One of the most common reasons for buying life insurance is to replace the loss of income for your family. It can also be used to pay off debts you leave behind or potential estate taxes. Or maybe you want to create a legacy—funds that can be invested and used for future generations under various circumstances or for charitable purposes.
A top benefit of life insurance is the proceeds from a life insurance policy may make cash available to your beneficiaries soon after your death. In addition, if the beneficiary designation is handled properly, the proceeds have the potential to be pass free of estate tax.
The costs and types of life insurance
Your life insurance needs will depend on a number of factors, including how much income you need to replace and what you expect the funds to do for your heirs or others in the future. And then there’s the cost—how much can you afford? Should it be term or permanent? There are plenty of tools to help you determine how much coverage you should have, including working directly with a financial professional. As your goals for the insurance may change over time, you'll need to periodically re-evaluate your need for coverage.
Your beneficiaries
You should name a beneficiary to receive the proceeds of your insurance policy. This is likely dictated by your ultimate reason for purchasing the insurance. In many states, if you do not designate a beneficiary, the proceeds from the policy may be included in your estate. This could create an unintended tax consequence—potentially federal and/or state.
An individual or an entity, including your estate, may be named as the primary beneficiary. Multiple beneficiaries may be included with specific percentages noted for each. You may also designate a charity or a trust as a beneficiary, but these may add different levels of consideration. Designating a minor as a beneficiary may create unintended issues as minors cannot own property. You should make sure you appoint a guardian in your Will or use a trust if a minor is your beneficiary. If you do not do so, the probate court may be step in and appoint a guardian for you.
Generally, you can change your beneficiary at any time, and it is not a cumbersome process. If you become incompetent, however, you may run into issues trying to change a beneficiary. Estate planning powers may be included in your Durable Power of Attorney (this will depend on the laws in your state), which would allow your attorney-in-fact to change the beneficiary(ies). There may also be some problems after the fact if questions arise about your competency and the changes you made. If you have named someone as an irrevocable (permanent) beneficiary, you may need that person's permission to adjust any of the policy's provisions.
To ensure your wishes are carried out, carefully consider the ramifications of your beneficiary designations and learn about specific requirements for your situation.
Overall, you may choose any person or entity as a beneficiary for your life insurance. For additional information on life insurance, a financial professional such as those with Busey Wealth Management can help. To learn more, visit busey.com/wealth-management.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.
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