• 10
  • November
    2011

After the economic meltdown of 2008 (and beyond), we all started to look at our estate plans differently. For the first time in a generation, many Floridians realized our investments may not increase in value over time. "Too big to fail" hit us and our estate plans pretty hard.

What many forget is that life insurance is a useful, and valuable, planning tool. Why? Well, most importantly, the payout does not fluctuate; it doesn't depend on the stock market, as a trust or 401(k) might. A $100,000 policy purchased today will pay $100,000 when you die 20 years from today (assuming the premiums are paid, of course).

Another plus for your beneficiary is that proceeds from a life insurance policy aren't taxable. Your heir won't have to pay income tax on the payout, and, because the payout isn't an estate asset, your heir won't be responsible for estate taxes, either. So, your $100,000 really is $100,000.

The good news there is that the proceeds can offset any expenses associated with the estate. If most of your assets are real property -- the house, the vacation home, the private island -- your heirs may not want to sell them off to pay debts or estate taxes. The insurance payout can cover them instead.

Florida residents know more than most about buying insurance. Life insurance is a lot like property and auto insurance. You buy through a broker or directly from the company, and the premiums are based on the value of the property you're insuring. With life insurance, you are insuring yourself, so expect a medical exam to be part of the qualifying process.

You may, in fact, already have a life insurance policy through your employer. The good news here is that a group policy doesn't require a medical exam. The bad news? When you quit or retire, you will likely lose the policy. These provisions vary by employer, so it's best to read the policy carefully.

Another decision you'll have to make is what type of life insurance to buy: Term or permanent? That discussion, though, will be left for another post.

Source: Wall Street Journal, "Life Insurance 101," Rachel Emma Silverman, Oct. 15, 2011