You enroll in life insurance to help those left behind after your death. The good thing about these policies is that they often have few or no restrictions on use. Survivors can use them in many ways. How can they maximize your coverage to your benefit? Can you take any steps to ensure family members use money specifically?
With a little planning, you can have a lot of control over the use of your life insurance. However, even with minimal intervention, your coverage can go to a lot of different uses.
Establishing Rules for Your Life Insurance
Life insurance only pays your survivors after your death. Therefore, it seeks to serve their benefits, rather than your own. As a result, you’ll generally have very little control over how your family can use the money. Still, a few safeguards do exist for you to take better control over your money.
Prominent among these is your ability to place life insurance money in a trust. If you direct the money into a trust, you can place rules on its use. The trustee--the person managing the trust--has to use it as stipulated. For example, if you want the money to go towards a child’s education, you’ll often let the trust to manage fund distribution.
As an added perk, survivors don’t often have to report the income from the policy as taxable. Therefore, they can enjoy a better payout in the end.
The Uses of Life Insurance Funds
Life insurance policies generally don’t go through escrow. So, your survivors will be able to gain full use of the money before any creditors, banks or other parties.
Unless you stipulate policy use through a trust, the survivors can often use money in any way they want. Think of some of the ways coverage might benefit those whom you leave behind.
- Coverage often help family members cover final expenses. Given that funerals or often cost a lot these days, a life insurance settlement might help.
- Your policy can reduce the risk of insolvency in your family. Your death will mean your own income dries up. Therefore, the life insurance settlement can help ease the burden. Your family might be able to move on easier.
- A payout can help your survivors cover everyday costs or use as income for a time.
- Coverage might help the family pay off debts, such as credit cards, mortgages or car payments. Therefore, costs you leave behind can go away.
Note the existence of a policy in your will. That will ensure that your family knows if you have a life insurance policy. They’ll need to know one exists to be able to maximize the benefits after your death.
Also Read: Should You Receive Your Life Insurance Claim in a Lump Sum or Payments?