Why life insurance is the smart first step in estate planning

Purchasing life insurance is a significant step in estate planning. For many people, it is the first time they will consider the legacy they will leave behind. Thus, it is a building block toward taking care of your loved ones financially and administratively, far into the future.

It’s not a surprise that early-career professionals may not be thinking about legacy just yet. Typically they are focused on establishing themselves, and they have yet to rack up significant assets like large 401Ks, real estate, and other investments.

Life insurance, however, is a tangible way to contemplate a future they cannot predict—and begin to think about the kind of security they want to leave to their loved ones.

In this way, life insurance not only provides peace of mind, it can serve as a bridge to financially sound planning. In a nation where 67% do not have an estate plan, that bridge is the start of a journey toward a legacy to be proud of.

What is estate planning?

A good estate plan will make things as easy as possible for those who stand to inherit the estate. Each person’s estate planning is individual to them, but typically they focus on:

• Creating a last will and testament, for direction on who will inherit which assets.

• Capturing health care directives, to make your end-of-life wishes known.

• Assigning power of attorney to handle your affairs when incapacitated.

• Minimizing beneficiaries’ tax burden.

• Naming guardians for children.

Probate, the legal process to transfer an estate’s assets to its beneficiaries, and other financial affairs typically take families a year or more to complete, Empathy’s Cost of Dying report shows. Life insurance provides a financial lifeline during this time, but smart estate planning prevents other financial setbacks like unnecessary court proceedings and delays, and paperwork errors that can result in fines and other delays.

Of the 67% who do not have an estate plan—a number that disproportionately affects middle- and lower-income families—many are concerned about the cost of an estate plan. But efforts made today pay off exponentially in the future, after decades of asset growth.

How to get started

Building a foundation of security with life insurance is a good first step. Based on your needs and budget, you can choose a policy that works for your family.

There are several types of life insurance:

• Term life insurance: Purchased in lengths of time, or terms, typically to cover a period of peak career years.

• Whole life insurance: A permanent policy, with premiums staying the same and a guaranteed rate of return on the policy’s cash value.

• Universal life insurance: This permanent policy allows you to adjust premiums as needed, yet has a cash value component that grows.

• Variable life insurance: This type of insurance that is tied to investment accounts, to increase cash value if it is managed well to take advantage of how the market is performing.

Estate planning next steps

Purchasing the peace of mind that life insurance provides is an excellent first step toward creating a legacy that your loved ones can depend on in the future. And it is important to think of the entire estate as well by writing a will and testament—a crucial step that many people avoid. In fact, only 32% of Americans currently have a will. Yet it is the most important way to make sure your loved ones can settle finances with fewer legal steps and to guarantee your wishes will be carried out.

In addition, creating a final wishes document, also called last wishes or end-of-life plan, . Unlike a will, which is a legal document that is often written in careful and cold legal language, a last wishes letter is simply an expression of what you would like to happen. The letter can be as short or long as the person chooses; it can be broad and general or very detailed and specific—including everything from financial account passwords to funeral and burial instructions.

It’s never too early to plan for a legacy of financial security. And on top of the previously stated reasons to get started, estate planning is the best way to avoid family disputes in the future. To keep a family together financially, and emotionally, there is perhaps no greater gift you can give than to plan for a future you can’t yet imagine.