The importance of life insurance

Life insurance is an essential estate planning tool.

Cover estate taxes upon your death

Paying taxes is inevitable upon death so life insurance can be useful to pay them without requiring the liquidation of assets. Buy a life insurance policy where the proceeds are payable to the estate to cover the taxes on the deemed disposition of your assets. Important fact: any life insurance product paid to a beneficiary is not taxable.

Donate your policy to a charitable organization

You can also donate your life insurance policy to a charitable organization. As the donor, you are entitled to an annual tax credit in the amount of the premiums paid on any policy whose beneficiary is a charitable organization. The benefit itself carries no tax consequences. If, on the other hand, you elect to donate your policy to a charitable organization so that the benefit is payable upon your death, the amount of the benefit paid to the organization is tax-deductible. The tax credit can be declared on the income tax return of the preceding year, if need be.

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