Life insurance is an estate planning element that can be used to satisfy a number of different objectives. In this post, we will begin with an explanation of the two most commonly used types of coverage.
Whole Life Insurance
Whole life is insurance that accumulates cash value. It also provides a death benefit. The rate of return is guaranteed and will vary depending on the policy that you purchase.
This is permanent life insurance. It will remain in place as long as you continue to pay the premiums. You can take loans out against the cash value. You can also make outright withdrawals.
With all life insurance, the premiums vary based on the age of the person who is taking out the policy, their gender, and their health. Women live longer lifespans, so they pay lower premiums. The health and age implications are self-evident.
The average premium for $250,000 of whole life for a man that is between 35 and 45 years of age will be between $282 and $432. For a woman, the average is in the $245-$349 range depending on their exact age and their health.
Term Life Insurance
The other commonly used type of insurance is term life. This coverage can be ideal to protect your family for a particular period of your life. As the name would indicate, the insurance is in effect during a prescribed term. You can choose the term when you take out the policy.
A 35-year-old Oklahoma City woman can get $500,000 of coverage for a 20-year term for about $25 a month if she is in excellent health. This is an estimate provided by Fox Business.
Planning for Small Business Partners
Now that we have shared some of the basics, we can look at a couple of targeted utilizations of life insurance.
Partners in small businesses are faced with a challenge on the surface. What happens to the share of the business that is owned by a partner that passes away? Yes, it would become part of their estate, but what happens next?
If it is an owner-driven business, there may not be anyone in the family who is willing and able to replace the deceased partner. Plus, the surviving partner may not want to work with a family member who wants to step up and assume the role.
Selling on the open market would be an option, but once again, the surviving partner would be in a captive position. Fortunately, there is a viable solution in the form of a buy-sell agreement.
With the cross-purchase plan, the partners would take out insurance policies on one another. The payout would be equal to the value of a share in the business.
When a partner dies, the proceeds would be collected. The proceeds would then be used to buy the share that was owned by the late partner from their family.
There is another type of buy-sell agreement called the equity interest plan, and it works in the same manner, but the business entity buys the insurance.
Inheritance Balancing
Insurance can also be used for inheritance balancing. To explain, let’s say that you have two children, and you are a business owner. You are going to bequeath the business to one of your children who has worked with you for years. However, you want to leave your children equal inheritances.
Under these circumstances, you can take out a life insurance policy that is equal to the value of the business. You make the child who will not be involved in the business the beneficiary, and at the end of the day, your children will receive equal inheritances.
We Are Here to Help!
Surveys find that most people know that estate planning is important. However, a lot of folks procrastinate because they feel uncomfortable talking about personal matters with someone they have just met.
This is understandable, but since you are here, you have found the ideal resource. When you work with our firm, you will immediately feel our sincere commitment to your well-being.
We will gain an understanding of your family dynamic and your objectives and help you develop a plan that ideally suits your needs.
If you are ready to get started, you can schedule an appointment at our Oklahoma City estate planning office if you call us at 405-843-6100. The number for our Tulsa location is 918-615-2700, and there is also a contact form on this site you can use if you would rather send us a message.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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