4. Business buyout
If you are a business owner or co-owner, your passing could present challenges for those continuing the business after you, whether it’s family or business partners. Proceeds from a life insurance policy can help ease that situation.
Indeed, many partnerships and start-up enterprises establish plans from the outset to handle the loss of an individual with knowledge or talents key to the overall undertaking. This is often handled through the establishment of a buy-sell agreement — a contract that outlines how a departing founder or partner’s share in a business should be sold or reassigned to other stakeholders. Life insurance is often used to fund such an agreement.
5. Special purposes: Divorce, child support, more
Additionally, life insurance proceeds can be earmarked for a specific purpose, like divorce obligations for spousal or child support. Or, death-benefit proceeds can be dedicated to continuing support for a loved one, like a minor, a child with special needs, or an aging adult.
These types of directed purposes are often handled through the establishment of a trust. These kinds of arrangements hold assets on behalf of a beneficiary under the supervision of a trustee. A life insurance policy can fund a trust for a specific purpose, like continuing alimony payments, supporting a child until a certain age, or paying for care for a loved one with special needs.
There are many types of trusts with advantages and disadvantages regarding taxes, probate, and other matters. Many people opt to consult a financial professional about the options and how they might apply to personal circumstances and goals.
6. Probate avoidance
Probate is the process for overseeing the settlement and distribution of a decedent’s assets. It tends to be a lengthy and involved process, even when there is a will and general estate plan in place.
Insurance proceeds, however, avoid probate when going to a named beneficiary. And the payment can remain private, whereas the probate process is public.