Health Insurance Services

By Brad Schardein

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Estate planning is how you make sure that your assets – your lifetime accumulations – pass to your heirs in a manner of your design. It's how you make sure your family is secure, and your assets end up where you want them. It's taking care of your family, your business – whatever is important to you.

Proper estate planning, whether through a will or some other vehicle, will make sure you, and not the state, decide where and how your assets are distributed after your death. Life insurance can give you options that make your planning an easier process. There are two basic ways in which life insurance can assist in your estate planning:

1. Estate Enhancement – primarily for younger families and those families with children. Adequate life insurance that protects a family from financial loss due to a premature loss of life can help pay for future college tuition, mortgage payments, medical bills, etc. Tax-free life insurance benefits can help the surviving spouse and children maintain their standard of living.
2. Estate Liquidity – primarily for older folks with somewhat larger estates. Those individuals who are worried about federal and state death taxes can use life insurance proceeds to help pay those taxes. Many times, people with significant assets have those assets in "hard" form – they are hard assets, meaning that they are not easily or quickly sold. Your home, jewelry, artwork, cars and other material possessions are some examples. If those assets must be sold quickly to pay taxes that are due a few months after death, chances are you are not going to get top dollar for those assets. Life insurance can remove that concern.

There are more advanced uses of life insurance, many of which are geared toward business owners. Some of those examples follow:

• Estate Equalization for Family-Owned Businesses – Family businesses operated by parents with one or more children are often in need of liquidity when the parents die, as a majority of the estate is "tied up" in the business. Life insurance provides a way to pass the business to interested heirs while being fair to those children outside the business.
• Buy-Sell Funding – Life insurance can be an indispensable tool enabling surviving co-owners of a business to own and continue the business without outside intrusion, while the deceased owner's heirs obtain debt-free assets from the estate.
• Key-Person – Business owners use "key-person" policies to help replace earnings associated with the loss of employees whose unique talents and knowledge made them valuable assets of the business.
• Credit Enhancement – Life insurance is often used to stabilize a business concern's financial position and serves as a valuable asset to pledge as collateral.
• Informal Funding for Deferred Compensation – An important ingredient in any deferred compensation plan that is "non-qualified" is life insurance. Such policies owned by and payable to the employer remain a primary building-block of all such plans.