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Posted: 1 Jun

A Guide to Life Insurance and Estate Planning for Families

Life can be unpredictable, and it takes a conscious and deliberate choice to plan your future such that in case of sudden demise, your loved ones won’t suffer financially. Life insurance and estate planning are two essential components that, when executed correctly, can provide critical financial support to your family members, close friends, and other beneficiaries.  

Most financial advisors, estate planning attorneys, and tax professionals leverage life insurance policies when implementing estate planning strategies. If you are new to estate planning or wondering whether a life insurance policy is worth it, we have got you covered. Below is a detailed guide for your convenience. 

Reach out to a Vistaplan advisor today. They will guide you through the estate planning process and ensure you choose a customized life insurance policy that best fits your unique needs. 

What is Life Insurance? 

Life insurance is simply a legal agreement or contract between you, the policy owner, and the insurance company. The contract specifies the monthly payments you’ll need to make, known as premiums, and the lump sum (death benefit) that your beneficiaries will get after your demise. Your heirs will often have the freedom to use the death benefit for whatever purpose they want. This could include paying bills, settling debts, covering mortgages, or paying for kids’ education.

Life insurance policies are grouped into two main types: universal life and term insurance policies. The main difference is the coverage period; for instance, universal life insurance is a lifetime policy, while a term insurance policy only covers you for a given period. Here’s a quick breakdown of the two:

Term Life Insurance 

This is an affordable life insurance option that’s quite popular. Term life insurance offers coverage for a given period, where premium payments remain the same throughout the policy duration. The typical coverage period is 10 to 30 years, and if you pass away while the policy is running, your beneficiaries will receive the tax-free death benefit. If you want to renew the coverage after it expires, you’ll pay a higher rate. 

Universal Life Insurance

With universal life insurance, the premiums are slightly higher than term life insurance since it builds cash value. In other words, the insurance policy has a portion that acts as a savings account, which you can borrow against or/and make a withdrawal. You can also choose to terminate the policy, and you’ll get the cash value, except that you’ll be charged a surrender fee. 

What is Estate Planning? 

Estate planning is a process in which you make arrangements for what happens to your estate after your death. Your estate includes any asset, including cash, properties, accounts, and policies that will pass on/ payout to beneficiaries after you are gone. The estate planning process involves:

  • Taking inventory of all your estate – these are properties under your name and those you jointly share with others. 
  • Consulting expert professionals – depending on the size of your estate, you may need expert advice from a financial advisor, tax professional, or/and estate planning attorney. 
  • Putting a plan forward – After evaluating your estate, the estate planning team will proceed to implement a strategy that works well for you and your beneficiaries. 
  • Reviewing the plan regularly – Quantifying your estate and delegating everything of monetary value to someone else is a huge commitment and can be quite overwhelming. A rule of thumb is to regularly review your estate plan and make necessary changes depending on your current financial situation, tax laws, and personal preferences.

Getting Started with Life Insurance and Estate Planning 

Now that you know what estate planning is and the different life insurance policies, you want to understand how the two connect or why they are relevant. Often, life insurance policies are used in estate planning when dividing ownership of a family real estate or business. Most investors will take out a life insurance policy that specifies how ownership of the estate can be divided after their demise. 

If ownership, for instance, is to be split equally among heirs, each of the beneficiaries can decide to keep a portion or sell their entire stake. Additionally, life insurance policies are not taxable, so it would make a lot of financial sense to take on a life insurance policy and spare your beneficiaries a considerable tax burden.

How Can Life Insurance Help with Estate Planning? 

Passing on an estate to your beneficiaries isn’t always as straightforward as it may seem. Depending on the number of assets, the number of beneficiaries, and your personal circumstances, the process can be hectic. Besides lowering the tax burden, here’s how the strategic use of life insurance can work for you:

  • Allows for easy access to final expenses. After your demise, a life policy will cover funeral expenses, debts, and even the final income taxes without liquidating some of your assets. 
  • Helps with estate equalization. In situations where every beneficiary has their own preferences on how they can use a part of the estate, a life insurance policy can help avoid wrangles by solving the issue maturely and more reasonably. This often applies to assets where breaking them up would negatively impact their revenue-generating ability.
  • It helps streamline business operations. Businesses that have lost their co-founders or partners may have difficulty growing or resuming normal operations. A life insurance policy can make that transition more bearable as it guides what happens to the partner’s shares, accounts, etc., after their demise.
  • Life insurance proceeds can solve divorce and child support issues. Dedicating a portion of your assets/estate to a loved one, i.e., a minor, friend, or ageing parent, becomes much easier if life insurance proceeds back this up. These directed purposes are usually done by establishing trust. There are several types of trusts, and you want to identify the pros and cons of each before choosing one. 

Plan Your Future and Support Your Loved Ones Today 

A life insurance policy is a critical tool that allows you to secure the financial future of your loved ones. Whether you are a young, old, or single parent looking for a favourable insurance policy, several options are available for you to choose from. Your aim should be to choose a policy that will offer the most benefits and value to your beneficiaries with respect to the premiums made. 

If you are financially capable, you can choose the permanent life insurance option with the savings element that allows for either withdrawing or borrowing from the policy. This option is quite popular among older couples. On the other hand, the term insurance option is popular among younger and healthier insureds who may want to avoid the expensive premiums while enjoying coverage within a flexible period. 

Regardless of the life insurance plan you’ve chosen, you can align your policy with an estate planning strategy to ensure your beneficiaries get the most value and easily access their inheritance. 

When choosing a life insurance plan or creating an estate plan, always pay attention to your current and future family needs. This often means working with a trustworthy insurance broker and seeking professional guidance from a financial planner. If you need any assistance, we’d love to help! Call us today to speak to a Vistaplan advisor.


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About the Author - David Motkoski

David Motkoski—At the Helm of Vistaplan Financial Group

David is a well-respected insurance advisor with over 30 years of experience helping healthcare professionals, business owners, and their families secure their financial futures. He takes the time to make certain his clients understand the life, disability, and health insurance products they are purchasing, so they can make the right choices for their budgets, plans, and futures. CONNECT WITH ME ON LINKEDIN

Life & Disability Insurance for Alberta Health Care Professionals, Business Owners, and Their Families Since 1983