Many people don’t think much about their own estate plan until they become inheritors and see how hard the process can be. In this video, we’ll cover practical, high-impact ways to make things easier for your children and heirs, especially if you want to reduce confusion, delays, and the potential for conflict.
Transcript
If you’ve inherited recently, it’s likely that something has shifted. It’s not just about more money, it’s about perspective. When you inherit, the question often isn’t just: “How do I invest this?” It becomes: How do I protect this? Make sure it lasts, not just for me, but for my family?”
Today, we’re going to talk about one of the tools people consider when they’re thinking about
Some of the things we’ll address are whether life insurance makes sense after inheriting, the different types of insurance, and how to think about your needs.
As always, this is not personal advice, and you should always speak with a licensed, reputable professional about your own situation. This conversation is meant to give you some foundational knowledge without the jargon so you can make decisions with more confidence.
I’m Rachael Bourke, a financial advisor with Hello Inheritance, where we help women and couples navigate the financial and emotional sides of inheriting wealth.
The first question we need to ask is, should you be considering life insurance? When you inherit, it’s natural to start thinking about your own estate plan differently. You may be thinking, “I want my kids or my spouse to be secure,” or “I want to lessen the burden of my death for my loved ones.” Life insurance is one tool that can help accomplish these goals. By purchasing insurance, you are transferring certain risks away from your family and onto an insurance company.
According to the Insurance Information Institute, some of the most common reasons people buy life insurance include replacing income, covering end-of-life expenses, paying off debts, leaving a tax-free financial gift, and protecting heirs from financial burden.
Some of the big questions are, who are the people who would be impacted most by your death?
Often people buy life insurance because they have a spouse or children who are dependent on their income. Life insurance can be structured in such a way that it can create a nest egg that will help provide for your family after you’re gone.
Another question to ask yourself is, do you have any debts that would become your estate’s responsibility, such as a mortgage or credit card debt? Life insurance can be purchased to pay off any debts so it doesn’t become the responsibility of the next generation.
It’s important to note that creditors can make claims on assets before anything passes to your children. That means the value of your home and other assets can be diminished by liabilities rather than the full value passing down. Life insurance can help avoid this outcome and keep the value of your estate intact. Finally, they say that life insurance is one way to create an estate. It guarantees an immediate tax-free lump sum upon your passing.
Besides just leaving money behind for your kids as part of your legacy, your passing can create financial responsibilities such as funeral costs, final medical bills, probate fees, and taxes.
While other assets such as real estate can take months to liquidate, life insurance is typically paid out within about 30 days after the insurance company receives the necessary documents.
In addition to providing immediate cash, life insurance allows you to take a portion of the inheritance you received and turn it into an estate of your own, something that can support and protect the people you care about most.
If you decide that life insurance might make sense for you, the next consideration type of policy would best fit your needs? There are a lot of strong opinions out there. Some financial experts and pundits will claim that you should only ever buy term insurance, while others say that permanent insurance is a key pillar of any financial plan.
The truth is, each type of insurance has its use and is suited to different situations. So let’s talk through some of the nuances while keeping in mind that you should always consult a professional about your specific needs.
The first is term insurance. Term insurance is often the most affordable type of life insurance and is often purchased by young families with kids or those with temporary debt like mortgages. This type of policy offers coverage for a set period of time, which is the term, typically 10, 20 or 30 years. It pays a death benefit to the beneficiaries only if the insured passes away during that window.
Otherwise, the policy lapses and no benefits are paid.
Like I said, term insurance tends to be purchased by people with temporary financial responsibilities. For example, let’s say Darlene has a 30-year mortgage.
If she were to pass away before the mortgage was paid off, her family would become responsible for the loan or risk creditors knocking at the door. If Darlene has term life insurance, however, that policy could pay off the loan, thus taking that responsibility off her family’s shoulders.
Not to get too much into the weeds, but it’s worth noting that there is a specific type of term insurance called decreasing term. The idea here is that the death benefit decreases over time to match obligations like a mortgage that also decrease over time. These are often more affordable than level term policies.
Now let’s look at another example. Take Glenn. Glenn has two young kids and is the primary breadwinner for the household.
He wants to ensure that if he were to pass while his kids were still at home, his family wouldn’t have to scramble to replace his income.
He can purchase a term insurance policy to provide this and ensure that his spouse can continue taking care of the kids even if he were to pass away.
Now, one of the downsides to be aware of with term insurance is once the policy ends, you must reapply and re-qualify for insurance. Often, because of age or health-related issues, premiums can increase sharply and the policy benefits can be less favorable.
The other major type of life insurance is permanent insurance. This includes whole life and universal life. Permanent insurance is typically more expensive, but unlike term, it lasts your entire life. Permanent insurance may make sense if you want to guarantee a legacy for your children or your spouse or you expect estate taxes after you pass away.
Some inheritors like the idea of permanent insurance because, unlike term, permanent insurance has a cash value. This means that if you were to surrender or cancel your policy before you pass away, you could get some money back from the policy. Term insurance is more of a use it or lose it. Even if you cancel it, you usually will not receive anything back. However, be mindful that there are tax consequences to doing so. Unlike death benefits, which are tax free, the cash value of an insurance policy is not. Remember, insurance is not an investment. It’s a risk transfer tool.
According to the American College, a core difference between whole and universal life policies is whole life offers the most predictability. It has guaranteed premiums and a guaranteed cash value. Universal life, on the other hand, offers more flexibility. You can control the timing of premiums, which then determines the growth of the cash value. This can make more sense for folks who have income that fluctuates.
There are, of course, many other differences between these two insurance types and many other types of insurance beyond what I’ve mentioned. Like I’ve said, it’s important to talk to a licensed professional about all your options to determine what makes the most sense for you.
Insurance isn’t always the right move, but for many inheritors it can be a powerful tool. If you’ve inherited wealth, you’re already part of a multi-generational story, and insurance can help make the next chapter even stronger.
If you want help figuring out whether life or long-term care insurance makes sense for you or how it fits into your legacy goals, you can schedule a call with us anytime at HelloInheritance.com.
If you resonate with this content, please subscribe for more conversations around inheritance, legacy, and financial planning.
And to support the channel, please like or comment on this video or share it with someone in your life who might benefit.
Thank you for being here and see you next week for a deep dive on long-term care insurance.
Disclosures
This content is for educational purposes only and is not specific investment advice. Advisory services for Hello Inheritance are offered through Bourke Wealth Management. Please visit www.bourkewealth.com for important investor information.
Bourke Wealth Management is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Bourke Wealth Management and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Bourke Wealth Management unless a client service agreement is in place.
This commentary reflects the personal opinions, viewpoints and analyses of the Bourke Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by Bourke Wealth Management or performance returns of any Bourke Wealth Management client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Bourke Wealth Management manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.