How much life insurance should I carry?
This is a great question! We hear it frequently, so we wanted to cover it here on our blog. The question is usually asked in the context of: “I’m about to purchase a life insurance policy. How much coverage do I need?”
The answer is – it depends.
Life insurance should be a piece of a larger estate plan and can have broad implications on a number of areas. Life insurance can be useful in several areas:
- Estate liquidity – Even if you leave a large, thriving family business and large estate, your loved ones will still need liquidity to run the estate in your absence. Life insurance can inject liquidity into the estate and provide the cash needed to pay bills and settle debts upon your demise.
- Income replacement – If you contribute in any meaningful way to your household’s income, you should consider how the loss of your income will affect your family and loved ones. Life insurance can provide a means of replacing some or all of your income in the event of your death.
- Business succession – Life insurance can help your business survive in the event of your death. It can help pay your estate tax and provide liquidity to help your business live on after you pass.
- Tax benefits – The death benefit of your life insurance plan is generally not included in your gross income, and is not usually subject to income or estate taxes. However, your beneficiaries would have to report any interest earned.
Life insurance can be a very useful tool, but it should not be viewed as a replacement for sound financial and estate planning. The “proper amount” of life insurance is dependent on your unique situation, including your finances, health, age and goals. If you’d like help with life insurance, estate, retirement or succession planning, contact us to schedule a consultation.