Is Life Insurance Considered an Asset?
Is The Life Insurance Death Benefit Part of Your Estate?
Life insurance can be used to create an immediate estate or aid in estate planning you’ve already begun. In addition to being used to create an immediate estate, your death benefit can help your heirs pay estate tax, and help you divide assets equitably among those heirs. When you purchase insurance, you can name one or more beneficiaries and specify what percentage of the total death benefit you want them to receive. You can split the death benefit between a spouse, children, grandchildren, and more. You can even name an institute or charity to leave behind a legacy to an alma mater or a worthy cause. When you pass away, your heirs will need to file a claim, and then your insurer will pay the death benefit income-tax-free. It is a straightforward transaction that cannot be held up by probate or be subject to debt collectors.
The money left behind can be used for anything – paying off medical bills or funeral costs left behind, college tuition, mortgage payments, or just paying for regular bills to replace the lost income or take time off work to grieve. There are no restrictions to what the death benefit money can be used for.
If you have a high net worth, your heirs may need to pay an estate tax in order to inherit. Life insurance can help avoid this by providing them with an income-tax-free cash payout to cover any estate tax due. This will help ensure they do not need to sell any assets like a home, artwork, jewelry, cars, or other property.
If you own a business, property, farm, or other assets that are difficult to divide equitably between your heirs, life insurance can help. You can put a policy with a face value equal to the value of an asset or a portion of the asset to leave your heirs who do not inherit the physical asset. For example, if you have three children and own a small business worth $2,000,000, you may only have two children who want to take ownership once you’re gone. To give all of your children an equal share, you may buy a policy worth $1,000,000 to go to your third child so they each receive an equal inheritance.
