September is National Life Insurance Awareness Month

September is National Life Insurance Awareness Month. In the past many families have viewed life insurance primarily as a way to pay for funeral expenses, but it’s become much more than that today. Now it’s seen as an integral part of estate planning.

Life insurance can be used to provide for many things: children’s education, income for the surviving spouse or children, or even to pay off a mortgage. It can also help to replace the money lost to expenses and taxes that occur when one dies.

Let’s take a look at an example of how life insurance impacted the death of two friends: Frank, who bought life insurance, and Dave, who did not. (Please note that these illustrations are hypothetical.)

Replacing Lost Income

When Frank passed away even though there was no paycheck any more, the life insurance ensured that his family did not have to alter their lifestyle and could live comfortably..

An added bonus-Frank's life insurance proceeds were available very quickly. Life insurance proceeds left to a named beneficiary don’t have to go through probate, so his family had access to fund right away to meet any immediate costs.

Dave on the other hand didn't buy life insurance. Even though Dave left his assets to his family in his will, those assets couldn't be distributed until after the probate of his estate was complete. Since probate typically takes six months or longer, Dave's family had none of the financial flexibility that a life insurance policy would have provided in the difficult time following his death.

Replacing Wealth

When Frank bought his life insurance he planned for the potential costs of settling his estate, including taxes, fees, and other debts that his estate would have to pay. By comparison, these expenses took a big bite out of Dave's estate, which had to sell valuable assets to pay the taxes and expenses that arose as a result of his death.

Giving to Charity

Frank also used the life insurance to make a substantial gift to his favorite charity. Since gifts to charity are estate tax deductible, this gift was not subject to estate taxes when he died. Dave always dreamed of leaving money to his alma mater, but his family couldn't afford to give any money away when he died.

Planning for Estate Taxes

Before buying life insurance, Frank talked to his attorney about the potential tax consequences. Frank's attorney told him that if his estate was large enough, it could be subject to federal and state estate taxes, depending on the applicable law at the time of his death. Frank and his attorney put a plan in place that would allow Frank's survivors to use his life insurance policy to help pay for some of the potential estate taxes that might be owed at his death.

Let's be Frank, not Dave

Throughout his life, Dave worked hard to support his family. Frank did, too, but went one step further–he bought life insurance to protect his family after his death. Here's how you can be like Frank:

• Use life insurance to ensure that your family has access to cash to help them meet both their short-term and long-term financial needs
• Plan ahead–buy enough life insurance to cover the potential costs of settling your estate and to ensure that the assets you leave to your survivors aren't less than you intended
• Consider using life insurance to give to charity
• Consult an experienced attorney about income and estate tax consequences before purchasing life insurance

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. Member FINRA & SIPC