Planning Your Estate? Don’t Forget Insurance
Written by The American Academy of Estate Planning Attorneys,
Compliments of Morris Hall
The term “estate planning” calls to mind the process of creating a Will, establishing a Living Trust, or naming a Guardian for young children. One piece of the estate planning puzzle that might not be readily apparent, though, is insurance.
When it comes to planning your estate, insurance in its many forms has an important role to play, both in allowing you to build and preserve wealth during your lifetime and in assisting in the transfer of wealth to your loved ones after your death.
The purpose of life insurance is to provide money to one or more named beneficiaries in the event of your death. It is often used by young families to ensure that their children’s needs will continue to be met in the event of the untimely loss of one of the parents. Beyond meeting the basic needs of a spouse or children, a life insurance policy can be used to provide an inheritance of any size for a loved one, or it can even be used to ensure the continued care of a beloved pet.
Health and Disability Insurance
You purchase health insurance to pay for medical care, procedures and medications needed by you and your family members, while disability insurance provides income for you in the event of an illness or injury that renders you unable to work. Both of these types of insurance are important in the context of estate planning because they help shift the risk and expense of catastrophic events away from you and your family, helping to ensure that medical emergencies do not wipe out the nest egg you have worked so carefully to build.
Homeowner’s insurance covers a range of potential risks to your home. It covers damage to your home’s structure and its contents due to fire. It also provides liability coverage to you in case a guest or another third party is injured on your property. If you rent your home, then your renter’s insurance covers your personal possessions, but not the structure of the home itself. Neither basic homeowner’s nor basic renter’s insurance policies generally cover damage due to floods or earthquakes. Separate policies must be purchased to cover these risks.
Remember back when you bought your house? You may have purchased a policy of title insurance. This insurance protects against a potential defect in the chain of ownership to your home that would allow someone else to claim that they’re actually the rightful owner. Sound far-fetched? It’s been known to actually happen. There are actually two types of title insurance policies. Lender’s title insurance protects your mortgage company’s investment in your home, while owner’s title insurance protects your investment in your home.
Insurance for Your Other Property
There are also policies of insurance available for cars, boats and other items of personal property. These policies generally protect against damage to your property, and they also shield your pocketbook from the liability that can accompany the negligent use of that property.
What about umbrella policies? An umbrella policy provides additional liability coverage over and above your individual insurance policies, adding an extra layer of protection between your family’s assets and your ordinary policy limits.
Keep Your Attorney in the Loop
Your insurance decisions and your estate planning choices can affect one another. For instance, a large life insurance policy can increase the value of your gross estate and trigger estate tax liability, and funding assets into a living trust may have an impact on your property insurance policies. Because insurance and estate planning interact in this way, it’s important to keep your estate planning attorney in the loop when it comes to your insurance decisions.