Perhaps no step is more important in estate planning for young families than purchasing life insurance. What would be the standard of living for children and a surviving spouse if an income was lost?
Life insurance is for the replacement of income when dependents are involved.
Other uses include paying off any remaining mortgages or debts, paying for a funeral, providing retirement money for a surviving spouse and creating wealth for future generations. T
The payouts are tax-free which means beneficiaries do not claim the money as income (however, a payout may push an estate over an estate tax limit). Examining The Types of Life Insurance
Cost-wise, there are two types of insurance:
Term insurance, which is the least expensive, does not build a cash value and ends after a chosen term, such as 10 years, 20 years or 30 years. "Level" term insurance retains the same payout regardless of when the deceased passes during the term, as opposed to a "decreasing" term insurance which reduces the payout later in the policy.
Cash value insurance, which includes universal life insurance and whole life insurance. Part of the premiums you pay is put towards a cash value that accumulates. The cash value grows tax free and be borrowed against. Cash value policies will last an entire lifetime as long as sufficient premiums are paid into the policy. Cash value policies cost more than term policies but are an important tool in larger estates.
Use the links below to see sample quotes based on your age and the amount of insurance desired. Discuss with an insurance professional your needs and resources to determine an appropriate amount of coverage.
For parents of a newborn, a term of 25 years would see the child through college. If each parent earns $50,000 of income, each parent may choose to purchase $500,000 of term life insurance.
If the parents above planned on having another child in the following years, they might opt to purchase term life insurance for a term of 30 years (it can be costly adding additional coverage at a later point and it's possible you might develop a medical conditioning preventing you from obtaining future coverage) and raising the amount of life insurance to $750,000.
A spouse may opt for 30 year term life insurance even if children may be out of the home fifteen years into the policy for the purpose of replacing potential retirement savings.
Once the policy is issued, the insurance company must honor the term established in the initial contract but the owner of the policy can cancel at any time or have the benefit and payments reduced.