Estate Planning with Life Insurance in New York

Estate planning is the process of organizing one’s financial affairs prior to death. Typical estate planning documents include wills, living trusts, and advance health care directives. Life insurance, which provides a policy holder’s family with income upon his or her death, can also be an effective estate planning tool. The different types of life insurance include:

• Term life – Term life insurance policies are designed to provide a large death benefit for a low premium. As the name implies, term life insurance is selected for a specific time period, and it is typically utilized by individuals who have an accurate idea of how long they will need coverage. After that period expires, coverage at the previous premium rate is no longer guaranteed, and the client must either forgo or obtain further coverage with different payments or conditions. If the insured individual dies during the term, the death benefit will be paid to his or her beneficiary. In addition, term life insurance policies typically specify a maximum issue age, so individuals over a certain age sometimes have difficulty obtaining coverage.
• Whole life – Whole life insurance, which offers a death benefit and investment component, stays in effect as long as premiums are paid, and it is intended to remain effective for the lifetime of the policy holder. The cash value of a whole life insurance policy grows tax-deferred while the policy is in effect. Since whole life policies remain in effect for as long as the required premiums are paid, whole life insurance premiums are usually higher than those of term life insurance policies.
• Variable life – Variable life insurance is a kind of whole life insurance. With variable life insurance, the policy holder can allocate a portion of the policy’s premium dollars to an investment account comprised of instruments such as stocks and bonds. However, the investment aspect of variable life insurance policies makes them riskier than the other policies discussed above.

Use of a Life Insurance Trust in Estate Planning

One method of incorporating life insurance into estate planning is via the creation of a life insurance trust. Life insurance trusts are used in estate planning to shield insurance proceeds from an insured individual’s taxable estate. This enables life insurance benefits to pass directly to beneficiaries of the policy upon the death of the policy holder without estate tax consequences. Life insurance trusts are irrevocable, and changes may not be made by the insured once the policy is placed in the trust.

If you’re considering purchasing life insurance as part of the estate planning process, please contact an estate planning attorney to discuss your situation. An experienced New York estate planning attorney will provide you with detailed legal guidance regarding life insurance and the estate planning process. Please contact us for a free consultation at (518) 462-5601.