Life Insurance

Life insurance does not need to be a part of every person's estate plan. In some cases it can be useful, especially for parents of young children and those who support a spouse, disabled adult or child. Life insurance proceeds are a handy source of cash to pay the deceased's debts, funeral expenses, and income or estate taxes.

Situations in which there are no minor children or financially strapped dependents may not need life insurance. To help evaluate your life insurance needs, several considerations need to be taken into account:

• The number of people who depend on your earning capacity - If there are none, you probably do not need life insurance.
• The amount of money your dependents will need for living expenses - One way to determine this amount is to look at the earned income that you bring to your dependents on a regular basis and subtract the worth of property they would inherit from you and any amounts that will be available from public sources or private insurance plans that already provide coverage. Social Security Survivors and Dependents benefits may be available, and you may also be covered by union or management pensions or a group life insurance plan.
• Length of time before your dependents become self-sufficient - the age of your dependents should be considered in determining your needs.

Determine your needs for short-term life insurance:

• Assets available to take care of your dependents' immediate financial needs - You might leave some money in joint or pay-on-death bank accounts, or place marketable stocks in joint tenancy or register them on beneficiary (transfer-on-death) forms.
• Length of time before your property is turned over to your inheritors - if most of your property will avoid probate, there's usually little need for insurance for short-term expenses, unless you have no bank accounts, securities, or other cash assets. However, if the bulk of your property is transferred by will, and therefore will be tied up in probate for months, your family and other inheritors may need the ready cash insurance can provide.
• Substantial debts and taxes after your death - If your estate has almost all "non-liquid" assets (real estate, collectibles, a share in a small business, jewelry), there may be a significant financial loss if these assets must be sold quickly to raise cash to pay bills compared to a situation in which there was enough liquid money from insurance or other sources to meet all pressing bills. If your estate has significant funds in bank accounts or marketable securities, you won't need insurance for this purpose. Federal estate taxes aren't due until nine months after death, so cash to pay them doesn't have to be raised immediately.
• Avoiding probate - The proceeds of a life insurance policy are not subject to probate unless you name your estate as the beneficiary of the policy. If anyone else, including a trust, is the beneficiary of the policy, the proceeds are not included in the probate estate and can be quickly transferred to survivors with little red tape, cost, or delay. Except when your estate will have no ready cash to pay anticipated debts and taxes, there is no sound reason for naming your estate, rather than a person, as the beneficiary of your life insurance policy.
• Avoiding state taxes – At the time of your death, if you own your insurance policy, the proceeds are included in your taxable estate. If your estate is large enough to face estate tax liability (at least over two million dollars), your life insurance proceeds will be subject to estate tax. Otherwise, if you don't legally own your life insurance policy, the proceeds are excluded from your taxable estate. This can significantly reduce your death tax liability.

Business Needs

If you are sole owner of a business, determine how much cash it will need upon your death. If you wish and expect some of your inheritors to continue the business, ensure there will be enough cash flow for them to maintain the business successfully. You may need insurance proceeds to cover any cash flow shortage of the business and liquid funds to pay estate taxes.

If your inheritors do not continue the business, determine how much your death is likely to affect the value of the business and if there will be enough cash to keep the business alive until it is sold.

If you are one of several co-owners, life insurance proceeds can be used to buy-out co-owners' interests. Consult a reputable estate planning attorney for additional information regarding buy-sell agreements.

Start planning now Most people have car, home, and health insurance, but far too many have not planned for financing long-term care. A brief, temporary stay in a nursing home can rapidly diminish years of careful financial planning. Long-term care is so expensive that many people risk losing their life savings within one year. The average cost for a nursing home private room is around $70,000 annually, while the average cost for a semi-private room is around $62,000. Expect to pay in the neighborhood of $18.58 per hour for home health aides, according to the 2005 Genworth Financial Cost of Care Survey.

The "silver lining" is you can increase your choices and reduce your financial risk by planning now. For long term care you can rely on family, the government, or long term care insurance. With the first two options, adult children and other family members often pay for the long-term care in the form of lost wages and other unmeasured costs. Government programs like Medicare and Medicaid provide only limited care under specific conditions. With long-term health insurance, you can transfer the expense to an insurance company. Therefore, you can select the type of care you want to receive as well as where you receive it. For you this translates into freedom, control, integrity, and flexibility.

Please contact us for more information on how we can help you better prepare for your long-term health care needs.