Estate Planning: Life Insurance

Life insurance policies can offer different benefits to different people, depending on where they are in life. When used as part of an estate plan, the purpose is to ensure loved ones have enough money available to them to cover current and future expenses. These expenses could include paying for a mortgage, children's college education, paying off debts, and covering final expenses.

Two common types of life insurance are term and whole life. Term and whole-life insurance are just two types of life insurance that people can use to protect their loved ones from a variety of expenses they may not be able to take care of on their own. Learn more about the details of each, so you can make an educated decision about which one is right for you.

Who Buys Term Life Insurance?

Term life insurance is life insurance that has an expiration date. It's usually chosen by parents who want to provide for their underage children until they're old enough to provide for themselves. For example, if a mother has two young children, she might choose to set her term life insurance to last up until the youngest child turns 21. Term insurance tends to be more affordable and more flexible than whole-life insurance, which is another reason why it's a popular choice. For those willing to pay a higher premium, there are term life insurance policies where policyholders can get the full costs of their premiums back if they're still alive at the end of the expiration date. However, there is no way to use the premiums as a safety net in case of an emergency (this is a common benefit with other types of life insurance.)

Who Buys Whole-Life Insurance?

Whole-life insurance is a type of permanent policy that comes with some of the more traditional benefits of life insurance. The payments typically stay consistent from beginning to end and each one will help the policyholder accrue more interest. Whole-life doesn't have an expiration date, and it does have a savings component. For example, policyholders can take out a tax-free loan from their policy based on the premiums they've paid. This type of cash value loan isn't interest-free, but it can be a light in the dark if a person hits a particularly rough financial patch. Policyholders can also use accelerated benefits to help pay for long-term treatment for a terminal or a chronic illness. They can even surrender the policy entirely for cash. Those who take out this type of insurance generally have a spouse or permanent dependents they will always want to provide for.

Additional Considerations 

Some people think that life insurance could be considered a type of investment strategy, but it's really designed to help your loved ones make arrangements and take care of their financial obligations after the policyholder is gone. Whether you choose to buy term or whole-life insurance, it helps to keep in mind the following questions:

• Who do you want to provide for and for how long?
• What financial plans do you have in place to safeguard against emergencies?
• How much money will your loved ones need to survive?
• Do you want a more flexible policy, or guaranteed payments and outcomes?

Those considering life insurance should also remember that most insurance companies will work with individual requests depending on their circumstances. For example, there are term insurance policies that allow holders to convert the policy into a permanent one if circumstances change. So if a single father sets up his policy to last until his children become independent, he may want to convert his policy if he finds a new spouse that he wants to provide for.

Whether you choose to buy whole-life or term life insurance, or any other type of life insurance, it helps to plan ahead as much as possible. The more you understand what the options and consequences are of anything from illness to financial crisis to death, the easier it will be to pick a policy that works for you and your loved ones. If you're trying to figure out the right life insurance policy for your estate plan, Escient Financial is here to help guide you in that decision and connect you to providers that can offer you the life insurance you need.