Life insurance is a type of insurance that provides a cash payout to the beneficiaries named in your policy after your death. Life insurance should be part of your estate plan because it can provide financial security for your loved ones. There are benefits to having life insurance as part of your estate plan to protect the future of your loved ones after you are gone.
Life insurance is tax-free to the beneficiaries. Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person and aren’t includable in gross income and you don’t have to report them. However, any interest you receive is taxable and you should report it as interest received.
Estate probate can be expensive, take months or even years and cause additional stress on your loved ones. In most cases, there is no probate court involved. However, insurance policies payable to the deceased person’s estate are subject to probate.
2. Pay Estate Debts
In most cases, life insurance paid to a beneficiary is exempt from estate debt. Proceeds from a life insurance policy payable to the deceased person’s estate can be used to pay any debts owed by your estate so that more of your assets go to your heirs.
3. Pay Estate Taxes
In most cases, life insurance paid to a beneficiary is exempt from estate debt. Although your beneficiaries do not have to pay taxes on their life insurance benefits, your estate may have to pay state or federal taxes. Proceeds from a life insurance policy payable to the deceased person’s estate can be used to pay estate taxes.
Do you have questions about how life insurance can enhance your estate plan? Our experienced estate planning attorneys in Cook, DuPage, Kane, Lake and Will counties in Illinois can advise you on the best options to protect your assets and loved ones. To talk to an estate planning attorney contact the Estate & Probate Legal Group at 630-864-5835.