Leaving behind something for your heirs is something you may want to do. Yet, many people struggle with having what they think is enough to leave behind. For many reasons, life insurance can help to fill this gap. Understanding how it works and when it may apply to you is important. The type of coverage you purchase also matters. Take a look at how life insurance works for inheritance purposes.
How Does Life Insurance Work?
These policies have a death payment. That term describes a large, lump sum payment made at the time of the policyholder’s death. The funds go to the person named on the policy. These are your beneficiaries.
What is unique about life insurance is that your survivors remain in control over all aspects of it. The funds within this type of policy do not go to your estate. They are not subject to any type of court access. In other words, if you want to name a neighbor to inherit those funds, they will.
How Can This Help You With Inheritance?
Because of the flexibility of life insurance, you remain capable of naming anyone you wish to receive funds. For example, you may wish to leave behind funds to your grandchild. You secure the life insurance policy and name that child as the beneficiary.
In situations where there is a minor named as a beneficiary, it may be wise to establish a trust. People under 18 years old generally cannot directly inherit. Work with your estate planning attorney and your life insurance agent to do this. The trust would allow you to name a person to be in control over the child’s money. That person then makes decisions based on your wishes.
How to Choose a Policy
Take a moment to consider who you wish to leave funds to. Then, consider the amount you wish to leave behind. Most often, inheritance-style policies should be whole-life policies. You may be able to use a term life insurance policy to do this as well. However, term life policies expire after a certain number of years. For that reason, you may not have those policies in place long enough.
There are a few legal matters to consider when using life insurance in this way. The most important step you can take is to make your wishes known. Let your estate planning or family lawyer know about the funds and the policy. Be sure your agent helps you to keep those policies up to date as well.
Also Read: What is the best age to purchase life insurance?