Life Insurance Basics

Life Insurance Basics article image

Contributed by: Tony DiPietro, State Farm Insurance Agent

What is Life Insurance?

Life insurance is a contract established during your lifetime where an amount of money (called the “death benefit”) is paid to a beneficiary (the person(s) or entity you choose to receive the money) at your death, in exchange for a premium that you pay to the insurance company during your lifetime. However, there are various types of life insurance products available, all designed to serve a particular purpose. An insurance professional can help you understand your options and make the best selection for you and your loved ones.

How can Life Insurance Support Your Estate Planning Objectives?

Because life insurance pays your named beneficiary (i.e.; person(s), trust, business and/or charitable entity) funds that are liquid and readily available after your death, it can fund a number of objectives common in the creation of an estate plan. Let’s explore some common examples.

For a client who is building their life savings, but passes away before their financial dreams are realized, life insurance can help fund their financial aspirations after their lifetime. A client in this situation may provide their family the financial support to pay off debts, death taxes and final expenses due soon after the client’s passing. The death benefit can be used to satisfy an outstanding mortgage on the family home or other property the family wishes to maintain. The life insurance funds can also be invested and used over time so that the family continues to enjoy the same standard of living they experienced when their loved one was living. The funds can help fund a number of other financial objectives the client had for his or her family. Perhaps this allows the family to establish educational funds for the client’s children or grandchildren, fund future family travel, contribute to weddings and/or home purchases for the client’s children or grandchildren.

If a client has a loved one with special needs, they may work with their attorney to create a special type of trust to protect their public benefits. Life insurance can be used to fund that trust for the benefit of their loved one, giving the client peace of mind that the funds are immediately available for the benefit of their loved one.

Life insurance can also support charitable planning at death. A charity can be named as a beneficiary of a life insurance policy, perhaps freeing other assets to be distributed to the client’s loved ones while satisfying a charitable inclination.

In certain situations, a “terminally ill” or “chronically ill” person may be able to receive the death benefits of a life insurance policy during their lifetime, free of federal income tax. Such “living benefits” received prior to death can allow a person to pay medical bills or other expenses.

How can Life Insurance Promote a Sense of Security in Your Business?

If you are a business owner, life insurance may serve additional purposes. Perhaps you have hired a key employee, who helps your business run smoothly. Key employees are difficult to attract and retain. If your key employee suddenly passed away, life insurance could relieve the financial strain that would result to your business in the wake of their immediate absence.

Business owners may also turn to life insurance to help fund a business transfer. If there are multiple owners, the business or living owners may purchase the deceased owner’s share upon his or her death, allowing business operations to continue. Life insurance can ensure that the business owners can pay the value of the deceased owner’s share to his or her family. In this way, business operations continue while the family receives the financial support desired.

How can a Life Insurance Professional Help?

Your insurance professional can guide you on a number of decisions that you will make as your life insurance needs change. Here is a list of frequently asked questions to discuss with your agent:

• Who should be the owner of the policy? • How much life insurance do I need? • What type of life insurance policy should I consider? • How should I structure the payment of my premiums?

Tony and his Team are happy to assist you as you explore your life insurance needs. They can be reached by calling his office at (410) 742-3355, stopping by the office at 246 Tilghman Rd., Salisbury, MD 21804, or sending an email to Tony@tonyinsurance.net.