Life insurance seems like a simple investment. You buy it. If you die while it is in place, it pays your loved ones a sum of money.
However, there are other benefits to this insurance plan. In some ways, it can be an excellent way to leave tax-free money to a loved one after death. Speak to your licensed tax professional and your insurance agent. Be sure this applies in your case.
What Happens After Death
A person dies and he has life insurance. The policy names his wife as the recipient of the death benefit. This is the payment sent from the insurance company to the wife. The funds usually arrive within days to weeks of the individual's death. This money often becomes untouchable in several ways.
First, creditors usually cannot file a claim against life insurance proceeds. Only the beneficiary (in this case the wife) makes decisions about who receives funds. The funds remain protected long-term. The wife, in this case, does not pay taxes on the funds received. She can use the money as she sees fit.
Second, life insurance does not go through probate. Probate is a legal process that occurs after death. During this time, the court requires the deceased individual's creditors to come forward. The court determines who receives payment for the individual's debts, if any. The judge may order assets sold. Even in this situation, life insurance maintains protection. The judge cannot access it to repay debts.
In these ways, life insurance offers the family a tax benefit. Consider this situation above playing out.
- The wife receives a life insurance payment for $100,000. It will help her pay bills and living costs after losing her husband.
- The court works through probate. The life insurance is not a part of the process.
- There are likely no taxes to pay on the life insurance.
- More so, the life insurance does not add to the value of the husband's estate. This means the wife does not pay higher taxes on the value of the estate.
- The estate settles. Creditors receive payment as necessary. The wife maintains the financial support of the policy.
It is essential to consider the value of life insurance like this. It often reduces tax liability. Putting money into a life insurance plan can help you meet your loved one's needs long after your death. This can give you peace of mind.
Need life insurance? Let us help. Call McInnis Insurance Services, Inc. at 844.926.0860 and we can help you get a fast, free life insurance policy quote.
You might also like - Why You Need Life Insurance Coverage at an Early Age.