Term Life Insurance vs Whole Life Insurance – Why It Matters
Life insurance is a commonly used tool in estate planning, but often misunderstood or misapplied. It is one tool of many, and you should consider life insurance as part of a comprehensive plan.
Term life insurance is essential insurance that you rent for a period of time (typically 20 years). Term insurance is affordable if you’re young and healthy, and generally serves a specific purpose, such as premature death. You could instantly make up for income loss, supporting children, etc. Term insurance typically is used for younger people who need this affordable protection. The disadvantage of term insurance is that once your term expires, the insurance premiums skyrocket or the policy lapses. There is also no cash value or other benefits to these policies.
Whole life insurance is a policy that accumulates cash value and can offer a guaranteed death benefit. Certain types of whole life insurance policies can provide unique estate planning benefits, such as the ability to add an “accelerated death benefit” or long-term care rider. With this type of policy, life insurance is no longer just a benefit to your loved ones, but a benefit to you as well if you need long-term care (In Pennsylvania, nursing home costs are surpassing the $100,000/year mark easily).
Life insurance generally passes inheritance tax free in Pennsylvania. Life insurance death benefits are also income tax free. Finally, you may use life insurance if you have a large estate to fund an Irrevocable Life Insurance Trust, so that the life insurance benefits aren’t included in the estate for tax purposes.
If you want to learn more about how life insurance may benefit you and your estate, contact The Law Offices of Jeremy A. Wechsler today for your consultation.