When we talk about estate planning, most people probably default to thoughts of wills or trusts. However, life insurance can be an important consideration for estate planning, especially if you haven't yet built up wealth or you know that your heirs will be left with obligations or needs requiring cash.
It's not as simple as buying a life insurance plan and calling it a day. As with any other type of insurance, you have numerous choices and each type of plan offers different benefits. One type of plan you might consider is called whole life insurance. A lot has been said about whole life insurance and whether you need it, and it can get confusing to understand whether or not this is a good product for you.
The basic and likely most common form of life insurance many people deal with is called term life insurance. This works very similar to your car insurance in that, if the payable incident occurs when you are paying the premiums, then the policy pays a benefit. The payable incident in this case would be that you pass away, and your beneficiary collects the payment. If you stop paying the premium at anytime, the benefit no longer applies. In many cases, the life insurance itself is no longer offered once you reach a certain age. Term life premiums can also go up over time.
Whole life insurance, on the other hand, usually comes with premiums that remain the same and you keep the policy for life as long as you continue to pay those premiums. Some whole life policies are considered fully paid for after a certain amount of time, sometimes as long as 20 or 30 years. Whole life policies also often accrue a cash value that you can use toward other expenses at some point in the future.
Whole life insurance policies might be one way to invest in your future and your heirs, but they aren't usually a good purchase for individuals who are older and will never see the policies mature. Understanding your insurance needs is an important part of estate planning, and you might consider speaking with professionals about both your financial and legal needs to ensure you have all bases covered.
Source: Money Under 30, "Is Whole Life Insurance a Good Investment?," David Weliver, accessed July 15, 2016