Life insurance pays a “face amount” to the beneficiary of the policy upon the death of the insured person. The purpose of life insurance is to fund the needs of anyone who would suffer from the loss of your income resulting from your death. Life insurance is used to satisfy both business and personal needs.
- Collateral for business loans
- Funding for buy/sell agreements
- Funding lost profits while seeking a replacement for a key executive
- Providing benefits to key employees and general employees
- Funds to raise and educate children
- Funds to cover funeral expenses and unpaid medical bills
- Buffer to allow survivor time to adjust
- Funds to pay estate taxes and allow retention of certain non-liquid assets or a family owned business
- Funds to care for a disabled child or elderly parent
- Funds to provide for a charitable bequest
- Funds to liquidate a significant debt
Life insurance comes in many flavors:
- Riders are available – at additional cost – to cover:
- Disability waiver of premium
- Guaranteed purchase options
- Coverage of spouse or children
- Double indemnity for accidental death
- Some policies provide and riders are available for others that:
- Life insurance proceeds on policies that you own will be subject to estate tax. Consider whether it makes more sense to have your beneficiary purchase the policies and gift them the funds to make the premium payments.
- Consider naming a secondary beneficiary to receive the insurance proceeds in the event that your primary beneficiary is no longer living. If the proceeds go into your general estate, they will be subject to possible delays in probate.
- The cash value of a policy can be used as a source of a loan at an interest rate stated in the policy.
- The proceeds of a life insurance policy are generally exempt from income tax.
- The cash value of a policy can be used to maintain the policy without further payment of premiums once the policy has accumulated sufficient cash value.