Life Insurance and

Estate Planning How insurance strengthen your estate

plan

By Richard B Schneider

Protecting Families Through Estate Planning

Estate Planning for Oregon and SW Washington

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Most people feel that they

should purchase at least one life

insurance policy and that life

insurance should play a role in

their estate plan. Beyond those

two basic propositions, most

people are unsure of how to

approach life insurance.

How much life insurance do you need?

What type of life insurance should you purchase?

How does life insurance fit into your estate plan?

Do you need an additional policy if you own an interest in

a business?

All of these are valid questions that you should know the

answers to before you sit down to create your estate plan.

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Although each estate plan is as unique as the creator of the

plan, there are some general answers to life insurance

questions that can provide you with a starting point.

What is life insurance?

A life insurance policy is a contract between you and an insurer.

As the owner of the policy, you pay premiums in return for

which the company agrees to pay out a specific sum of money

to your chosen beneficiary upon your death. In some cases, a

life insurance policy will pay out after the expiration of a set

period of time even if the insured has not died prior to that

time.

What are the basic types of life

insurance?

There are two basic types of life insurance – term and whole

life. Within the category of whole life, there are also a number

of variations and hybrids.

Term life insurance is the simplest type of life insurance. With a

term policy, you pay an annual premium that pays for death

benefits and nothing more. A term life insurance policy has no

cash value and does not have an investment component to it.

Insurance has a number

of uses as an estate

planning tool. It helps

protect and preserve

your estate, giving you

more to pass on to your

loved ones. It also has

special characteristics

that allow you to

position your estate for

sophisticated estate

planning.

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As a general rule, the premiums will increase as you age and

you may have to re-apply/re-qualify for coverage after the

expiration of the term; however, there are some term policies

that have declining premiums and benefits and/or that

guarantee renewal.

A term policy provides immediate coverage at no risk to the

policy holder. Usually, a term life insurance policy is less

expensive than a whole life policy, which makes it a good choice

for young couples who are primarily concerned with providing

income replacement in the event of an unexpected death.

Whole life insurance, on the other hand, both provides death

benefits and accumulates a cash value. In a whole life policy,

part of your premium is used to pay for your death benefit

protection and the rest is invested or saved. As time goes by,

your policy’s cash value will increase.

You can borrow against that cash value or take it out if you

terminate the policy. Although whole life premiums are usually

significantly higher than a term policy, unlike a term policy, the

rates will never go up and the policy never expires. Because

there are so many variations within the whole life category, it is

crucial that you carefully read the terms of a policy before

agreeing to purchase the policy.

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How much life insurance do I need?

Before you make a final decision about which type of life

insurance policy to purchase, you need to decide how much

insurance you need. Not surprisingly, experts disagree about

how you should go about calculating how much life insurance

you should purchase; however, a simple approach looks like

this:

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Funeral and burial expenses

Consider the cost of burial and funeral. Some people

choose to purchase a separate policy dedicated solely

to paying funeral and burial costs to ensure that they

are covered. Check with local funeral homes for a

ballpark figure.

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Debts

Add up all of your fixed debts such as your mortgage

loan, student loans, car payments and any other

significant debts for which you are liable.

Education

This can be difficult to estimate because you need to

consider what it will cost at the time your children

enter college. If they are young, this can be hard to

predict; however, experts estimate that college

expenses are increasing at about five percent per

year.

The term "estate

planning" usually calls

to mind the process of

creating a Will,

establishing a Living

Trust, or naming a

guardian for young

children. One piece of

the estate planning

puzzle that might not

be readily apparent,

though, is insurance.

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Income replacement

This can also be tricky because it depends on various

factors. Since you have already covered major debts

and education, consider how much of your income

your family still needs to survive. If you are a two

income family, the calculations will be different than if

you are a one income family. In addition, your age at

the time you purchase the policy will greatly affect the

calculations.

.

Once you have all of the numbers down, add them together and

then adjust them for any special circumstances that warrant an

adjustment.

For example, do you have a pension coming or a large

inheritance that might warrant a lesser life insurance amount?

On the other end of the spectrum, do you have a special needs

child that will require more than the average amount of

financial support in the years to come warranting an increase in

the amount of life insurance you purchase?

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Business Interests

If you own a small business, either as a sole proprietor or as a

partner, you may also need to add an additional policy that

covers your business interests. If you are a sole proprietor, you

may be personally liable for some of the business debts. In the

event of your

death, you need to

be sure that those

debts are covered.

If you have

business partners,

you may need a life

insurance policy

that will ensure

that funds are

available to cover

the costs involved

in a buy-sell

agreement entered into by the partners. A buy-sell agreement

essentially ensures that if you die, your interest in the business

will be purchased by the remaining partners at a pre-

determined price. This way, your family members are not stuck

trying to figure out what to do with your business after your

death.

The estate planning

process presents a

number of

opportunities for using

asset protection

strategies to protect

yourself and your loved

ones.

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Incorporating Life Insurance

into Your Estate Plan

Once you have decided how much life insurance you need and

what type of policy (or policies) you need, you will need to

incorporate those decisions into your estate plan. For example,

if you decided to purchase a separate life insurance policy for

your funeral expenses, you may take that decision one step

further and create a funeral trust that you fund with the policy.

University of Minnesota –Life Insurance in Estate Planning

Kiplinger – How Much Life Insurance Do You Need?

For information and/or comments on this article, please write to

information@rbsllc.com

About the Author

Law Offices of Richard B. Schneider,

LLC – Estate Planning & Asset

Protection Attorneys Portland OR

Before devoting his professional

efforts exclusively to estate planning,

Mr. Schneider spent over fifteen

years working on Wall Street for

major law firms and investment

banks. After graduating from law

school, he practiced general civil law

in New York City for five years,

specializing in business transactions,

financings and corporate matters. He

also represented major investment

banking firms in mortgage trading

and real estate-related matters.

Among his clients were international

shipping companies, commercial and

investment banks and institutional

lenders, including General Electric

Capital Corporation, Salomon

Brothers and Merrill Lynch.

2455 NW Marshall St, Suite 11 Portland, OR 97210 Phone: (503) 241-1215

Fax: (503) 241-1216