When
most people think of life insurance, they think of benefits paid out
at death to help cover the cost of funeral expenses. Considering a
traditional funeral and burial can cost between $7,000
and $10,000 in
some cases, life insurance is a great investment if you want to
reduce your loved one's financial burden.
Funeral
expenses may be a main reason to secure life insurance, but it is not
the only reason you will want to leave money for your loved one after
your death. With this guide, you will learn a few other ways your
loved ones can use your life insurance benefits.
1.
Estate Taxes
Your
loved ones may need to pay different taxes after your passing.
Unfortunately, they may not have the funds to cover these expenses,
but a sufficient death benefit amount will help.
If
your property and assets are valued over $11.4 million and will be
transferred to your beneficiary after your death, a federal estate
tax will be imposed. While in Florida, estate taxes are only imposed
on a federal level, other states may also impose a state-level estate
tax after a certain threshold, so if you have property in another
state, that property may be subject to state taxes.
Most
inheritances are not subject to federal and state estate taxes since
they are below the minimum threshold. However, if you believe your
estate will be valued over the set amount, your heir will need to pay
federal estate taxes, which will be costly.
Make
sure your death benefit will be enough to cover not only your funeral
expenses but also any estate taxes your beneficiary may be obligated
to pay after your passing.
2.
Charitable Donation
The
life insurance can also be given to a charity of your choosing. For
example, if a charity or organization is important to you or your
family, the death benefits from your life insurance policy can be
donated.
To
ensure the benefits are donated to your specific charity or
organization, such as a cancer society, church, or even school, you
can designate them as the beneficiary.
Consider
naming multiple beneficiaries and designating percentages to each.
For example, the entire death benefit can be divided in half. This
will ensure half of the death benefits are paid to the charity and
the other half is paid to another beneficiary, such as your spouse or
child.
Make
sure the charity is a 501(c)(3) organization, so the money donated
will be a tax-deductible contribution.
Another
option is to ask your beneficiary to donate a certain amount of the
life insurance proceeds to a specific charity, organization, church,
or school. You can make this request legal by adding it to your last
will and testament.
3.
College Expenses
College
tuition is expensive and seems to increase each and every year. On
average, one year at a public college in your state can cost $14,210.
Therefore, if you have one or more children, college tuition can be
quite overwhelming.
If
you fear you will pass away before your children enroll in college,
remember that the death benefits can be used to cover their tuition
needs. Be sure to calculate the average cost of tuition per year for
each of your children and factor in inflation to determine how much
life insurance you will actually need.
You
can also use a whole life (or permanent) insurance policy to help
fund your child's tuition while you are still alive because this
policy accumulates cash value over time.
Life
insurance is not just to help pay for funeral costs — it can be
beneficial in a variety of ways. For
more information on life insurance, contact
Harr & Associates Insurance, Inc., today.
