Insurance is vital to blend in into your estate planning as it serve plenty of benefits. Insurance can make a small estate becomes big and protecting an estates which is larger in value. Besides, insurance can serve as an immediate funds used to payoff various expenses and debts.
Why do we need immediate fund when we already have a Will to distribute the estate ?
Time is the main concern in distribution because distribution is not immediate. An executor have to 1st pay off whatever debts the deceased owe before start to distribute. This process normally takes months, years and sometimes longer depending on the complication of the estates. What if the Will being challenge in court ?
Although assets being frozen but expenses keep moving. From funeral expenses to mortgages and child education fees which have no room for delay. If the expenses do not handle properly, it will lead to further emotional stress.
In order to leave your loved ones in a better financial position upon death, one should place in an insurance in your estate planning.
- Pay for funeral expenses
Funeral expenses is costly. If you already have an insurance policy to payoff this expenses, beneficiary do not need to dig on their saving or ask money from relatives to payoff these expenses.
2. Settle debts
Debts have to be settle before an estate starts to distribute. Money can come from estates or insurance proceed or beneficiary pocket. Whether the estate consists of mostly illiquid or liquid assets, using estates fund to payoff debts will result in the depreciation of total estate value. In other words, beneficiary will get lesser than expected. Using insurance proceed would be a more wiser method to settle off the debts. After all, is just a small token of money use in exchange of a high payout. Doesn’t it worth a second thought ?
3. Income replacement
How much income does my dependent need without me ? How many years do you want to continue to support your dependent after demise ? This is all depends on your own goal and family situation. Example, if you are sole breadwinner leaving behind a spouse & small kids, you may need to think of supporting them financially for another 10 years to come. Spouse who need to bring up the kids alone deserved to be giving continuous income support so that they no need to worry about financial. Prepare some education funds for kids to continue their education is of concern too. Planning would be more critical for parents with special kids ? An ideal income replacement is 10x of your annual income. How far have you achieved?
For those business owner, do set up a buy sell agreement so that beneficiary will get a fair value in the company shares. Continuous income is what matters when beneficiary is not in play/not interested in your current business.
4. Estate administration Fees
To administer an estate, there’s fees incur. Lawyer fees, opportunity cost, runner fees, tax clearing fees, property transfer fees and so on. Using the estates wealth to payoff the fees will diminished the estate’s total value, hence leaving lesser to beneficiary. If there’s an insurance in place, after paying off all the debts, whatever leftover insurance payout can further distribute to beneficiary. Hence, it enhance the wealth of the estate.
5. Tax free basis
Insurance payout is tax free. In other words, your beneficiary are receiving the payout 100% without need to deduct any tax. Meanwhile, this payout is immediate too.
6. Leverage on your wealth
Maximize your net worth by leverage on your assets. For example, a 40 year old healthy individual can get a life protection of RM500,000 for a little of RM6000 per year. If he passes on 10 years later, means he is paying RM60,000 for a payout of RM500,000. Net gain of RM440,000. Even a full payoff of the premium for 20yrs (RM120,000), he still get a payout of RM500,000, net gain of RM380,000. Isn’t it worth a bet for just RM6000 per year?
7. Avoid probate
A Will need to go through probate process which takes time for distribution. While insurance proceed do not need to undergo probate process and the proceed can be fully paid to beneficiary at the fastest pace. If you are concern of spendthrift beneficiary, always set up a Trust to control the distribution of the estates. Besides, a Trust can preserve wealth to last through generation.
Most of the individuals when being approached to buy insurance, their answer is mostly ‘NO’. Partly maybe they have been approached by lots of insurance agent and they get fad up with insurance. But think again, how many of us really have adequate coverage of insurance? How many of us already work towards providing a continuous income stream to family members upon demise? Wait no more, have a complete estate planning now!