The Importance of Life Insurance in NJ Estate Planning

nj estate planning

If you have people relying on you, no doubt you have spent some time thinking about how to protect them in the event that something happens to you. In order to create a solid estate plan, life insurance should be a component of providing security for your loved ones even after you’re gone. Most life insurance policies fall into two categories: term life insurance and whole life insurance. How do you know which life insurance plan is best for you?

  • Term life insurance is only in effect for a specified period of time.
  • Whole life insurance covers you until death no matter when that is.

You’ll pay lower premiums for term life insurance than for whole life insurance. Other things to consider when selecting a life insurance policy include:

1. How much coverage do you need?

The end goal of term life insurance is to substitute the income you would have provided your family with. If you live past the coverage period of the policy, you receive nothing. Most policies cover for 10, 20, or 30 years. The premium (payment) for a term life policy is static throughout the life of the policy and is based on your age, health conditions, and lifestyle. Regarding term life insurance, the insurance company is betting that you will outlive the policy and they will not have to pay anything to your beneficiaries. Hence the lower premiums.

2. What kind of payments can you afford?

Whole life policies, on the other hand, are more complex. Because there is an absolute value and guaranteed payout for every policy, premiums are much more expensive. Insurance companies cannot gamble on whether or not they will have to pay out for your policy—they know they will have to.

3. How is your general health?

4. Do you make relatively smart lifestyle choices?

5. Do you want the option to borrow from your insurance policy?

Often, a complete health and wellness exam is required before an insurance company will issue a whole life policy. With whole life policies, part of the money you pay in premiums will go directly toward the value of the policy itself. This is your money. If you cancel the policy, you would still get some money back. While it will diminish the death payout of the policy, you can even borrow against a whole life policy.

6. What is your relationship status?

7. How much debt do you have?

If you are single, debt-free, and dependent-free, you probably don’t need life insurance at all. For most of us, this isn’t the case. Ask yourself what problems may arise if you were to die today. For instance, if you still have 20 years left on your mortgage, you might want to consider a term life insurance policy for 20 years so you know your mortgage will always be covered. On the other hand, if you have a lifelong dependent who requires constant care, setting up a whole life policy to cover their long-term care is probably the better choice.

8. How old are you?

Some people decide to invest in both a life and a term life insurance policy. When you’re younger, you may not be in the financial position (or have the need) to pay the premiums for whole life insurance. Many life insurance companies allow you to convert your policy from term to whole life as your circumstances change and as you age. Your new premiums would be based on your age when you convert. You may have to submit to a new medical exam, but by converting, you can benefit from lower premiums when you are younger while still putting money toward (what will become) a whole life policy to cover you later in life.

Estate planning, and life insurance in particular, can seem like intimidating tasks, but they don’t have to me. Veitengruber Law offers long-term planning guidance for all stages of life. We believe in utilizing personalized strategies to help our clients protect themselves and their loved ones. Schedule your free consultation to discuss all of your estate planning concerns.

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