An often-misunderstood aspect of estate planning is the connection between the estate plan itself and life insurance. These two items are distinct and originate from different sources, yet they are also related. Both are designed to provide peace of mind during a person’s life, and both are designed to make life easier for a person’s family in the event of their death. Although you can have one without the other, having an estate plan and life insurance serves most people well.
A complete estate plan consists of multiple documents, including a trust. The trust holds assets and allows for their orderly distribution upon a person’s death. Life insurance provides additional financial resources for beneficiaries at the time of death and is typically distributed directly to the policy’s named beneficiaries outside of the trust.
Only having life insurance would provide survivors with economic resources, but would fail to create a clear path regarding assets that the deceased held during their lifetime. Having a complete estate plan allows for the very important distribution of existing assets, but wouldn’t provide additional financial resources for survivors.
Preparing for the unknown by establishing an estate plan and purchasing life insurance can help give someone peace of mind in knowing that they have taken the responsible steps of providing for loved ones after they have passed.
At the time of a person’s passing, their family will have a need for order and resources. Planning for the distribution of existing assets while also providing additional resources can help to ease suffering. In this way, estate plans and life insurance have different roles, but can be viewed as two pieces of the same very important puzzle.