The Role of Life Insurance in Estate Planning: A Brief Guide
While life insurance may not be the most glamorous aspect of financial planning, its use in estate planning is pivotal in ensuring the financial security and legacy of individuals, families and businesses.
Why Life Insurance is Important in Estate Planning
Life insurance is not just a policy; it's a tool that can perform three key functions in estate planning:
Providing Liquidity for Debt Settlement
In the event of an untimely demise, life insurance steps in to alleviate the financial burden placed upon the deceased's family. By offering liquidity, it ensures that outstanding debts, mortgages, or other financial obligations are settled promptly, sparing the grieving family from additional stress and financial strain during an already challenging time.
Preserving the Estate's Value
Taxes and administrative expenses can significantly erode the value of an estate, potentially forcing heirs to sell off assets to cover these costs. Life insurance acts as a safeguard against this scenario by providing the necessary funds to cover estate taxes, probate fees, and other expenses. This preserves the integrity of the estate, allowing it to pass intact to the intended beneficiaries.
For professionals and business owners, life insurance can be particularly beneficial in allowing funds within a company to pass through to a spouse or the next generation in the most tax-efficient manner possible.
Equalizing Inheritance
Disparities in asset distribution can sow seeds of discord among heirs, particularly in families with diverse assets such as real estate holdings or business interests. Life insurance offers a solution by providing a fair means to equalize inheritance. By designating beneficiaries and payouts, it ensures that each heir receives a proportionate share of the estate's value, mitigating the potential for familial disputes and resentment.
Ultimately, life insurance is a flexible estate planning tool that can be structured to meet the many and varied needs of households and businesses.
This information has been prepared by Mehul Gandhi, CFP®, CLU®, TEP who is a Senior Insurance Advisor and Managing Director for Westmount Wealth Planning Inc., and a Financial Planner for Westmount Wealth Management Inc. Westmount Wealth Planning Inc. is a subsidiary of Westmount Wealth Management Inc. Westmount Wealth Management Inc. is registered as a Portfolio Manager in British Columbia, Alberta, and Ontario.
This material is solely intended to refer to products sold under a life insurance license and is distributed for informational purposes only and is not intended to provide personalized legal, accounting, tax, or specific investment advice. Please speak to a Westmount Wealth Advisor regarding your unique situation.
