The Importance of Life Insurance in NJ Estate Planning

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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.

Planning Ahead Eases Death Anxiety, Say “Death-Positive” Activists

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For most people, the thought of death can be frightening. No one likes to think about what will eventually come at the end of their life, but it is a fact that we have to face. Life on Earth does not go on forever. Knowing that, it’s crucial to plan ahead at least a minimal amount, especially when it comes to financial matters. Not only will you be assured that money and assets will go where you’d like them to, but your family will be thankful for your initiative as well.

For the big events of life, we make lists and try to be as prepared as possible. College. Weddings. Babies. Jobs. Retirement. The end of life should be no different. Of course, we have those things like skydiving, going on a cruise, swimming with a dolphin, and visiting Italy on our bucket list, also known as things to do before we die. Just like these things compose one of life’s most important lists, so does writing a will, appointing a power of attorney (POA), and considering options for long-term care.

Innumerable, weighty decisions have to be made within just hours of a loved one’s death. With the already existent burden of anxiety and grief, a family doesn’t want to have to think about making all of these decisions after a loved one passes. In addition to financial matters, a family also needs to plan the funeral. Though we don’t want to think about it, making burial arrangements before death exemplifies concern and care for your family members. Over and over again, family members have shown gratitude and confirm the relief and comfort when a family member has pre-arrangements.

Any decision that has to be made after a person passes has the potential to cause disputes between family members. Some family members are going to feel that they have a stronger say in the decision-making process, while others will argue their point of view. Unfortunately, you won’t be there to give them your opinion. Again, by making arrangements before you pass, you eliminate the potential for many issues, before they arise.

There are a few clear-cut steps you can take to side-step some of the issues mentioned above.

1.      Power of Attorney (POA). The first and most crucial decision that you need to make is to appoint a reliable POA. It’s key that this individual is trustworthy, financially intelligent, and is someone that knows you well. When you are sick or unable to do so yourself, this person will deposit checks, take care of bills, and any other financial matters. In the United States today, people are living longer, which means that there’s a higher chance that more individuals will be living with chronic diseases as they age. Some of these diseases can impair a person to the point that they cannot take care of their money. That’s the point where a POA steps in; an individual that can take over for someone in order to ensure the highest quality of life for as long as possible.

2.      Write a will. Since estates worth up to $3.9 million are tax exempt, a will is usually sufficient estate planning for most individuals. A trust is can be produced to cut down on estate taxes and circumvent probate, but taxes aren’t as much of a concern in the current day. Also, the procedures are simpler, so probate is not as common either. Usually a will and a steadfast POA will get the job done.

3.      Living will. Since you’ve already appointed a POA, this step only involves writing a living will, or an advanced-care directive. Your POA will implement your wishes at the end stages of life. Again, when you name a POA, it needs to be someone you completely trust. If you don’t create a living will, your loved ones may run into some horrific problems. If a person is brain dead, a family needs to decide whether or not the individual should be kept on life support. If you’ve already delineated this in a living will, there will be no questions about it.

In addition to these 3 major points, as well as the funeral arrangements, there are a few other minor choices you’ll want to contemplate. Consider the option of donating organs when you pass. Also, look into life insurance if your partner or kids will need financial support without you. Finally, consider long-term care. If possible, it’s best to stay out of nursing homes, as they are incredibly expensive, but if it is a necessary possibility, then you should give it some serious thought.

The most important concept: start planning sooner instead of later (the way we should approach all aspects of life). None of the above steps will happen without conversations with children, spouses, and maybe even your own parents. It’s a tough topic to broach, but it’s absolutely necessary. A few early and simple conversations can save a lot of headache, broken relationships, and hurt feelings in the future, as well as ease your own anxiety about death.

Why Beneficiary Designation Forms are so Important

Let’s imagine a quick scenario: Bob is a newlywed who starts a new job with great benefits. During the hiring process, he signs up for the life insurance policy offered through his company. As a beneficiary for this policy, he designates his spouse, Amy. Time passes, Amy and Bob get a divorce, and Bob gets remarried to Lisa. Years go by and eventually Bob dies, leaving behind his life insurance. When Lisa goes to collect on Bob’s life insurance policy, the insurance company informs her that she is not the beneficiary of his policy. Instead, the money will go to his first wife, Amy. Despite his divorce, Bob never went back to change his beneficiary designation forms. This is unfortunately a common legal issue for people who have been divorced, separated, or remarried.

These beneficiary designation forms are typically included in the paperwork you fill out the first week at a new job. As a new employee, you will have the option to fill out designation forms for your potential retirement assets, including 401(k) or IRA, your life insurance policy, and other benefits. Contrary to popular belief, these beneficiary designation forms legally override any existing will or trust, regardless of which document is most recent. It is easy to forget about beneficiary designation forms while going through the ups and downs of life. Years can pass, and despite many changes in your personal life, you may never think to go back and updated these documents. This is a huge mistake, especially because it is so easily resolved.

We at Veitengruber Law want to stress the importance of changing these documents whenever your circumstances call for it. Some states even have laws protecting insurance policy holders and their loved ones from these oversights, but the legal importance placed on beneficiary designation forms can lead to problems even in these instances. In Minnesota, for example, there is a revocation-on-divorce statue currently under review in the Supreme Court and the fate of cases affected by this statue hangs in the balance. Regardless of the laws in your state, be proactive and protect yourself and your loved ones by ensuring your assets are designated correctly.

Veitengruber Law recommends doing a periodic self-audit to assess your preparedness in these events. Do you have a 401(k), IRA, or other retirement assets? Do you have a life insurance policy? Who is listed as the beneficiary for these assets? If you find that you do have some changes to make in who is designated as the beneficiary on these forms, don’t wait to change them. Life can change abruptly and unexpectedly, so make sure you are prepared today for whatever comes tomorrow.

The last thing you want is for your loved ones to become entrenched in a legal battle after you are gone. For most of us, our loved ones are at the forefront of our thoughts as we plan for the future. If you have retirement benefits or a life insurance policy, make sure you are including updated beneficiary designation forms in your plans for the future.