In a very general sense it is readily apparent that you can purchase life insurance to be sure that your family will have something to fall back on after you pass away. However, there are some particular circumstances that arise for some people that present estate planning challenges. Life insurance is sometimes a simple but effective solution.
Life insurance can be at the root of a small business succession plan for business partners. Let’s say that you have an equal partner in your business. You can determine the value of the business, and as such gain an understanding of the value of each partner’s share.
You then go forward and purchase life insurance on one another with the policy proceeds being equal to the value of a business share. When one of the individuals involved in the partnership passes away the proceeds from the insurance policy are utilized to purchase the decedent’s share in the business from his or her estate.
The survivor can then go forward making autonomous decisions, and the family doesn’t have to attempt to liquidate the share.
Inheritance balancing is another objective that can be accomplished through the purchase of life insurance. Suppose you have an extensive art collection, and it is your most valuable possession.
You want to give this collection to your son who is an art aficionado, but you have two other children. You can do the math with regard to the value of the collection relative to your total assets and make the two children beneficiaries of insurance policies that balance out the total inheritances that all three children will receive.