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The role of life insurance in estate planning

When creating their estate plan, many Philadelphia residents fail to understand the impact that life insurance can have on the loved ones that are left behind. In some cases, the lack of life insurance can leave surviving family members in serious financial straits. For others, carefully considered insurance planning can make the grieving process far easier to weather, as loved ones will have the assurance that their financial needs will be taken care of in the years ahead. The following tips are offered to help individuals and families make informed decisions when it comes to this essential estate planning tool.

One of the most difficult parts of insurance planning is determining how much coverage is needed. This is a topic in which the answer varies greatly from one family to another, as no two households will share the exact same set of needs. In order to reach a final number, a series of conversations are necessary.

The individuals who will be purchasing life insurance (which is most often a married couple) should set aside time to sit down and discuss the matter in detail. The best place to begin is by listing all of the household's current and projected financial needs. This includes housing costs, expenses associated with the care of any shared children, as well as costs associated with other common needs, such as vehicle expenses, health care costs, medical expenses and so on.

The next step is to list all income that is currently being brought into the household. Couples should discuss the period of time in which the income of the deceased spouse should be replaced by life insurance proceeds. From that point, all currently held assets should be subtracted, such as savings, investments and existing life insurance coverage. The end result of these calculations should provide an idea of the level of coverage that is needed.

It is important to understand that there are no black-and-white rules when it comes to securing the proper level of life insurance. In addition, the matter should be re-evaluated from time to time, as the needs of the family will change as children grow older and the income-to-debt ratio shifts. Addressing life insurance within estate planning is an important part of providing for the financial security of loved ones, and a subject that many Philadelphia families should explore.  

Source: USA Today, "5 ways couples can tackle estate planning now", Barbara Marquand, Nov. 14, 2015

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