When it comes to the impact of insurance on estate planning, most of this discussion will focus on disability insurance and life insurance. However, it's always a good idea to look at other insurance products--we will touch on that in more detail soon. First, there are two crucial questions to ask yourself if you do not have disability or life insurance:
If I am no longer able to work, how will I pay to live and/or support dependents?
What debts would I leave behind if I were to pass on? How would my loved ones afford my funerary/burial wishes?
We have said before that many make the mistake of thinking estate planning is only for when we pass on, but it bears repeat mentions that estate planning is for when we are living, too. If you we're injured or very ill, and could not work, how would you pay your bills? If you have dependents, how would you support them?
Disability insurance protects you--and your estate--from such events. Depending on your situation, this product may not require much of a monetary investment when it comes to premiums, and will afford you peace of mind should you be unable to earn.
When personal finances get tight, most people cancel their life insurance policy, if they had one at all. However, simply because it is not mandated by law, like automobile insurance, does not mean it isn't important. Life insurance plans come in a variety of structures. These different structures have different benefits and costs, and suit different needs. Term life insurance is often the least expensive and quickest to obtain.
What are some things life insurance might pay for?
- Debts left behind after the insured passes on.
- Funeral and burial arrangements.*
- Life insurance can act as collateral against a loan.
*There is a type of insurance you can buy that specifically covers funeral arrangements. The benefit amount is usually fixed and designed to cover just that. An estate planning advisor can help you discover which product(s) may be right for you.
Other Insurance Policies
If you own a home or a business, reviewing the applicable insurance policies when you work on your estate planning is always a good idea. If you have an heir, you might consider listing him or her on your policy or policies to ease the transition after your passing or in the event you undergo a debilitating event.