You hear a lot about the fact that you need life insurance, but what exactly is it used for? Once a loved one passes away, there are actually long-term and short-term uses for life insurance, as well as benefits for owners of family businesses.
When they’re thinking about buying life insurance, people often focus on the “big picture” uses for the funds. These include:
- Paying off a mortgage
- Paying for college or private school tuition
- Allowing a spouse to leave work to stay at home – long-term – with young children
Life insurance proceeds are also there to get your family through those first, painful weeks and months after the loss of a loved one. The short-term uses of life insurance include:
- Covering final medical bills
- Paying funeral expenses
- Covering household bills
Be careful! Before you use life insurance to pay bills or debts on behalf of a deceased loved one, check with an estate planning attorney to make sure that it’s appropriate to pay these items with life insurance proceeds.
If you own a business, life insurance proceeds can be part of your succession plan, helping with the successful transition of a new family member into the leadership role, and making sure that your business stays afloat during the process.
Estate Tax Concerns
Of course, if you’re concerned about estate taxes, you’ll want to talk to an estate planning attorney about establishing an Irrevocable Life Insurance Trust. This type of trust can remove the value of your life insurance policy from your estate, while still providing the full benefit of your policy to your loved ones.