Cost/Benefit Analysis for Life Insurance

Some people put money into life insurance policies which they may not need, rather than having more money to put into groceries, rent, or investments. Often, young, healthy adults who don't have children could be making better investments than putting money into life insurance. However, even young adults may be wise to buy life insurance if they are concerned for the care of their surviving spouses/partners.

Young Families Must Carefully Consider Life Insurance

Before investing in life insurance, young parents should give careful consideration to who will care for their children if something should happen to them. Whether young parents are naming their own parents or other people as guardians of surviving children, life insurance can be very helpful to the guardians. Even if the potential guardians are financially secure, life insurance can help tremendously with the costs associated with taking responsibility for young children. Those costs may include the need for new housing, schooling and daily necessaries, college, and perhaps even helping an adult child start a business. What is more, potential guardians who are financially today may not be so in the future. Life insurance, especially for young healthy adults, can be a relatively inexpensive way to ensure that whoever takes on the responsibility of caring for minor children is not saddled with a heavy financial burden which would be stressful to the guardians as well as the surviving children.

In the event that one spouse were to die, would the other spouse be able to financially provide for the her/himself and care for the family as well? Life insurance commonly provides for the lost income of a spouse and for the replacement services needed to care for a home and family. If one of the spouses would need financial help if left to raise the children on his/her own, then some amount of life insurance would be appropriate.

Asset Protection is Part of Your Estate Plan

Life insurance can also be used for asset protection. Life insurance proceeds can help to protect an inheritance by covering costs that tend to eat away at an inheritance. Such costs include expenses of last illness, funeral expenses, final income taxes, debt repayment, the list goes on. Congress is fickle regarding estate taxes and an estate owing no estate taxes today may owe estate taxes in the future, either because of a lower exemption amount, greater wealth accumulation, or both. Also, life insurance can be used as an "equalizer" when, for example, it makes sense to leave a particular large asset (e.g. a house) to one child, but you want to provide equalizing gifts to your other child(ren). Before buying life insurance for asset protection or equalization purposes, you should consult with a qualified estate planning lawyer about tax-efficient ways to own and pay for life insurance, such as Irrevocable Life Insurance Trusts, in order to avoid increasing your estate's estate tax burden.   

Getting Legal Help

A qualified estate planning lawyer can help you create a strategy that helps you make the most of what your budget allows now and preserve a financial future for those who rely on you. Gadi Zohar, Esq. provides estate planning in Palo Alto for clients throughout California. Call today at (650) 493-9200.