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Ins Overview3 |
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50 Main Street
Mt. Kisco, NY 10549
Tel: 914-244-4400
Fax: 914-244-0088
Branch Office
Somers, NY
10589
Tel: 914-276-7878
We Do
EVERYTHING Monetary |
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HOW MUCH LIFE INSURANCE DO I NEED?
A commonly quoted rule-of-thumb is that life insurance should equal at
least six times your annual after-tax income. However, the real answer
depends on your needs and your unique family, business and financial
circumstances.Most people buy life
insurance for the following purposes:
• Ongoing needs for support, as a replacement for the deceased's paycheck.
• Immediate cash needs for such expenses as taxes, debts and burial and
estate settlement costs and taxes.
• Future financial needs such as college costs and retirement income.
To determine the amount of insurance you should have, it is necessary to
list all of your financial needs and then perform the calculations. This is
where your professional advisor can be of assistance.
LIFE INSURANCE AND YOUR ESTATE PLAN
Many estates, composed primarily of assets such as closely held business
interests, real estate or collectibles, are cash poor. If your heirs need
cash, these assets can be hard to sell. For that matter, you may not want
these assets sold.
Insurance can provide the necessary liquidity for your assets. Therefore,
even when the value of an estate is substantial, insurance is often
purchased simply to avoid the unnecessary sale of assets to pay taxes and
other expenses. The biggest purchasers of life insurance are wealthy
persons. What good is a substantial estate if it is badly eroded by taxes?
CONSIDER AN IRREVOCABLE LIFE INSURANCE TRUST
Life insurance is typically owned by the person whose life is insured. That
person usually pays the premiums and controls the designation of the
beneficiary. But there's a potential problem if you own life insurance
policies at death: the proceeds will be included in your estate, possibly
creating hundreds of thousands of dollars of unnecessary taxes. While there
are no income taxes on the proceeds, the estate taxes start at 35% and
increase to 55%.
Instead, you can create an irrevocable life insurance trust. The trust owns
the policies and pays the premiums. When you die, the proceeds pass into the
trust and are not included in your estate. The trust can be structured to
provide benefits to your surviving spouse and/or other beneficiaries.
A properly structured trust could save you more than 50% in estate taxes on
any insurance proceeds. Thus, having a $1 million life insurance policy
owned by an irrevocable insurance trust could reduce estate taxes by more
than $500,000. Setting up these trusts can be complicated - be sure to get
professional advice beforehand - but it's certainly worth checking out.
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