Table of Contents

• How Life Insurance Works

• The Two Types of Life Insurance

• Expert Interview: Hannah McKinney Kingrey

Good morning Noyackers,!

Thanks to everyone that responded to our poll last time. 26% of you were most interested in learning about tax optimization, with another 19% curious about managing debt.

If that sounds like you, make sure to stick around for the whole issue! We get into these topics in the context of estate planning.

Quick poll to stir the synapses:

Some of you messaged us and asked what happened to the continuation of the Estate Planning Series we started the second week of this newsletter, now officially #1 in Personal Wealth Management category thanks to you our tens of thousands of AMAZING subscribers 🙏.

So here it is - welcome to Part 3 of our Estate Planning Series. Today, we’re talking about life insurance as an estate planning tool. Candidly, I knew nothing about this topic three weeks ago and now I'm kicking myself for not learning about this powerful tool before my parents passed. Now that I’ve learned, this week I already scheduled 3 meetings with life insurers to complete my estate planning. My younger son Beckett will thank me many years from now.

Let’s dive in.

You’re probably familiar with the basics of how life insurance works – but you might not be aware of some of the advantages it can have when it comes to shaping your legacy.

Here’s what we’ve got in store for you today:

• The two types of life insurance you need to know about,

• How life insurance can be used to fairly distribute assets in a tax-efficient way,

• And key insights from a top legal expert in the niche world of estate insurance planning.

Let’s roll!

PS: Remember to check out the previous issues of our estate planning series. Part 1 was on wills & trusts and Part 2 was on beneficiaries, guardians, & executors! 

How Life Insurance Works

Here’s a quick reminder on the basics of how a life insurance policy works:

• The insured individual (that’s you) pays regular premiums to the insurance company on a monthly or annual basis.

• Life insurance policies have named beneficiaries – typically your spouse, children, or other family members.

• If you pass away, the insurance company will pay a (typically fixed) death benefit lump sum to those beneficiaries.

The death benefit will depend on the “size” of the insurance policy you bought, which will also influence how expensive your premiums are.

The cost of your premiums will also be influenced by a bunch of other factors, including your age, health, gender, etc.

While the popularity of life insurance has been declining in recent years, there are still hundreds of millions of active policies in the US.

At first glance, life insurance might look pretty similar to regular old investing as an estate planning tool.

After all, you contribute regular sums of money over time in exchange for a lump-sum benefit to your family after you pass away.

But there’s a key difference: investing returns can be volatile and uncertain. Plus, if you pass away unexpectedly young, your assets might not have had a ton of time to grow.

That’s why life insurance can be so attractive – a fixed, pre-set amount paid to those who depend on you.

The Two Types of Life Insurance

Now that we’ve covered the basics of life insurance, let’s take a look at the two main types of life insurance you’ll see in practice:

#1: Permanent life

Permanent life insurance is exactly what it sounds like – a permanent policy that lasts throughout your entire life.

As long as you keep paying premiums, permanent life insurance policies can be kept in force up until your death, making them valuable as a fixed part of your estate plan.

#2: Term life

In contrast to permanent life, term life policies offer life insurance coverage for a set term, often ranging from five to forty years. 

Why would you opt for a term life policy?

If you’re young, you might want life insurance to provide some financial security for your family if you unexpectedly pass away. 

But as you grow older, that financial security might be less of a concern - especially if college costs are already finished, your mortgage is paid off, and your children are earning their own income.

Therefore, purchasing life insurance for a set term can sometimes be a smart, cost-effective move – although you can’t use these policies as a fixed part of your estate.

Expert Interview: Hannah McKinney Kingrey

To better understand how life insurance can be used in the estate planning process, we sat down with Hannah McKinney Kingrey, an attorney and expert in the field of estate planning & family law.

Hannah has been practicing law for nearly a decade and is currently a partner at the McSwain Nagle Giese & Rapp, P.C law firm, based just outside of Chicago. 

Check out our conversation with Hannah below!

How can life insurance provide financial security for dependents and beneficiaries after one's passing?

Life insurance gives a sense of security and peace of mind, especially when you have dependents who may be left with large financial obligations. 

For instance, it provides support with home mortgages, providing children, a spouse, or other beneficiaries with special needs with the adequate funding they need to carry on their life without any interruptions, and other commitments and goals such as being able to pay for your children’s tuition.

Can life insurance be used to equalize inheritances among heirs, and if so, how?

Yes, and it can also be customized based on the needs of each beneficiary. This can be done without the need of an attorney by simply going back and making edits to the life insurance plan.

When it comes to investment assets, this process is more complicated as you need
an attorney and witnesses to make any changes and to distribute funds equally or segmented based on needs. If you are looking for a safe/guaranteed amount to be transferred over to the beneficiaries, opt for life insurance as your assets can be volatile based on market conditions.

What are the key considerations for naming beneficiaries on a life insurance policy in relation to an estate plan?

It all depends on specific circumstances. Generally, focus on people who you care about (spouse, children, etc.) and who would greatly benefit from it.

When it comes to an estate plan, just as it’s important to choose the right beneficiary, it is equally important to choose the right Executor or Trustee who will make decisions after your passing.

Make a good decision by choosing someone who doesn’t need your money, and has no self-interest in your assets and wealth. It’s also important that they get along with your family and beneficiaries on fair terms and can cooperate in a tough time.

📺 WHAT WE'RE WATCHING

This video from insurance company AccuQuote explores the difference between term and permanent life insurance policies in more depth. If you’re not sure which to choose, check this video out to get a better understanding of each option.

AccuQuote: Types of Life Insurance Explained

👂 WHAT WE’RE LISTENING TO

This podcast from wealth management firm Henssler Financial features a case study showing how life insurance can be used as an effective estate planning tool. This episode is especially valuable for understanding how life insurance can be used in practice.

Henssler: Case Study: Repurposing Life Insurance as an Estate Planning Tool

📖 WHAT WE’RE READING

This guide from wealth manager Merrill dives deeper into estate planning using life insurance, taking a look at the tax, philanthropic, and liquidity benefits.

Merrill: Estate Planning Using Life Insurance

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