Life insurance can be a valuable asset in the process of estate planning and has a number of valuable uses. It can ensure that a policy holder's family, business, favorite charities and other interests are well cared for. It can protect those interests while the policy holder is still alive and well beyond his death.
Personal Uses
Both permanent and term life insurance policies provide protection that pays a certain sum in the event that the insured person dies within a given period of time. This type of life insurance is generally used to protect a person's family from a loss of income. Outstanding taxes and debts can also be settled. Proceeds for life insurance can also be used to fund educations for children or grandchildren. It can also provide greater liquidity when balancing inheritance settlements. Plans for business continuation can also benefit from funding provided by life insurance proceeds. Funds from life insurance can also be set aside as gifts to charities and other philanthropic efforts.
Investment Uses
Permanent life insurance, which includes whole life, variable life and universal life insurance, also builds in cash value and can be used as an investment. The money paid into a permanent life insurance policy is, in turn, invested by the company that issued the policy. The return on investment may be a fixed rate, or it may be invested in money market funds, mutual funds or securities that have a variable rate of return, based on market performance. This allows the policy owner to save for retirement. The policy can also be borrowed on in the future. Permanent life insurance can also provide a way to invest money that has favorable tax advantages.
Business Uses
There are other business uses of life insurance. Buy/sell agreements provide funding, on the death of a business partner, for buying the interests of the deceased. Lines of credit can also be secured for businesses by serving as collateral for a loan. There are also policies that can protect a company against loss if a key executive dies. Life insurance is also used as an added incentive within employee benefits plans.
Burial Policies
Finally, there are simple and straightforward life insurance policies that are specifically designed to provide for the cost of burial alone. These policies are generally very inexpensive.
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