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Life insurance strategies need time to grow

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Estate planning: Plan early and wisely to get the most benefit out of insurance.

In my columns over the last few years I have not spent much time discussing life insurance and its role in estate planning.

Life insurance is an important tool in our financial plans if we die too soon. It can create much needed resources if we die prior to building up the resources needed by our families. Every young family should have this protection in place. Term life insurance is a bargain, and the premiums can fit into almost any budget.

Life insurance can also be a tool to help accomplish your estate planning goals later in life. For individuals with larger states (over $6 million) life insurance can provide needed liquidity to pay estate taxes without the need to liquidate land or equipment after death.

Life insurance can also provide flexibility in the division of your estate after death. In many farm and ranch operations dividing landholdings among family members can impact effective operations and create issues among the family. Planning ahead to have adequate resources to balance the estate division without dividing or selling the real estate or equipment can ensure that your farm or ranch legacy continues, and that your family still gathers for family events.

Planning takes time. Not unlike many aspects of farm and ranch operations, effective life insurance planning will require time to produce its best results. Planning early allows the life insurance strategies to provide the maximum leverage. It also allows you to combine the life insurance with other strategies like saving for retirement. Having the strategy potentially address two different objectives can reduce the overall cost.

It is best to purchase life insurance as early as possible, while you are young and healthy. As we age and potentially develop health concerns, the cost can increase considerably and sometimes prevent the use of the strategy altogether. Also, starting early can allow the investment to compound and work for you more effectively over time. Early implementation also allows you to reduce the cost of moving assets outside your taxable estate and leverage them into a significant benefit when needed to accomplish your goals following your death.

Life insurance is one tool of many that are used to develop effective estate plans. It is important to design the estate plan before purchasing the life insurance. How you acquire and hold the life insurance can have a significant impact on its cost and efficiency. Design your estate plan and then get your attorney and life insurance professional together to work on how to acquire, hold, and fund the life insurance to provide the maximum benefit for you, your spouse, and your family.

Properly implemented life insurance can support a number of your goals for the future. However, always remember that while life insurance death benefits are generally income tax free, unless properly structured, the life insurance death benefit will be included in your taxable estate. Unfortunately, because of this taxation, simply purchasing life insurance without planning it in conjunction with your estate plan, can actually increase or cause an estate tax problem. As I have mentioned many times over the last few years, plan early, plan wisely, and your planning will produce the best results.

Dolan, an attorney, helps farm and ranch families achieve comprehensive estate, succession and legacy planning objectives.  Dolan is the principal of Dolan & Associates, P.C. in Brighton and Westminster, Colo.  Learn more on his website:

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