Securing Your Legacy: How Life Insurance Empowers Young People as Estate Planning Rockstars

“By failing to prepare, you are preparing to fail.”

– Benjamin Franklin, Writer, Inventor, Statesman and Diplomat

By Realttorney^®

Estate planning is a critical aspect of financial management that often gets overlooked, especially by young people who may perceive it as something only relevant for older individuals with substantial assets. However, estate planning is not just for the wealthy or elderly.

It is a crucial process that should be considered by individuals of all ages, including young people. One essential element of estate planning that is often underrated among the younger generation is life insurance. Life insurance can serve as a valuable estate planning tool for young people, providing financial protection and peace of mind for themselves and their loved ones.

Life insurance is a type of insurance where the insurance company pays out a sum of money after the death of the insured or a benefit on a specified date. It is a contract wherein the individual pays regular premiums in exchange for a death benefit that is paid out to their beneficiaries upon their passing.

While the primary purpose of life insurance is to provide financial protection for loved ones in the event of the insured’s death, it can also serve as a powerful estate planning tool, particularly for young people who may have dependents or financial responsibilities.

One of the key reasons why life insurance is important for young people as part of their estate planning strategy is to ensure that their loved ones are financially protected in the event of their untimely death. Young adults may have dependents such as spouses, children, or aging parents who rely on their income to maintain their lifestyle or meet financial obligations.

In the absence of sufficient savings or investments, life insurance can provide a much-needed financial safety net to cover funeral expenses, outstanding debts, mortgage payments, and ongoing living expenses for loved ones. This can prevent financial hardships and ensure that their beneficiaries are taken care of during a difficult time.

Moreover, life insurance can also be used as an estate planning tool to address potential estate tax liabilities. While the current estate tax rate has been lowered to six percent (6%) under Rep. Act No. 10963, the value of an individual’s estate normally appreciates over time, especially if they own valuable assets, such as real estate, investments, or a business.

Young Filipinos who anticipate accumulating significant wealth over their lifetime can use life insurance to provide liquidity to cover potential estate taxes so that their beneficiaries do not have to sell valuable assets to pay taxes, which could lead to financial strain or the loss of assets.

Another benefit of incorporating life insurance into estate planning for young people is that it can provide opportunities for wealth creation and accumulation. In the Philippines, there are typically two main types of life insurance: traditional life insurance and variable life insurance.

Traditional life insurance focuses mainly on guaranteed death and/or living benefits. In contrast, variable life insurance is investment-linked, providing the policyholder with death benefits and also accrued cash value over time. The cash value can be invested and grow tax-deferred, providing an additional savings component that can be utilized during the insured’s lifetime. However, the cash values are non-guaranteed because the performance of the investment is affected by current market conditions.

Still, variable life insurance can be particularly advantageous for young people who have a longer time horizon for investment growth and can benefit from the compounding effect of the cash value over time. The accumulated cash value can be accessed through policy loans or withdrawals, which can provide a source of tax-advantaged funds for various purposes, such as funding education, starting a business, or supplementing retirement income.

Furthermore, life insurance can also be used as a succession planning tool for young business owners. Many young entrepreneurs may have started their own businesses and have aspirations to pass on their business to the next generation or a chosen successor. Life insurance can be utilized to fund a buy-sell agreement, which is a legally binding contract that outlines the terms and conditions for transferring ownership of a business in the event of an owner’s death.

By funding a buy-sell agreement with life insurance, young business owners can ensure that there is sufficient liquidity to facilitate a smooth transition of the business and provide financial compensation to the deceased owner’s family for their share of the business.

In conclusion, life insurance is a valuable estate planning tool that should not be overlooked by young people. It can provide financial protection for loved ones, address potential estate tax liabilities, offer opportunities for wealth creation and accumulation, and serve as a succession planning tool for business owners.

Hence, incorporating life insurance into an estate plan can provide peace of mind knowing that loved ones will be financially protected in the event of an untimely death, and can help young people achieve their long-term financial goals.

So, when considering life insurance as part of an estate planning strategy, it’s important for young people to carefully assess their individual needs, financial situation, and long-term goals. Consulting with a qualified financial advisor or estate planning attorney can provide valuable guidance in selecting the appropriate type and amount of life insurance coverage that aligns with their specific circumstances and objectives.

While it’s easy for young people to underestimate the need for estate planning, including life insurance, it’s a proactive and responsible approach to protecting their loved ones and safeguarding their financial future.

In the end, by incorporating life insurance into their estate planning strategy, young people can ensure that their financial affairs are in order and provide a solid foundation for their estate plan as they continue to build their wealth and navigate life’s uncertainties. Planning for the unexpected today can help secure a brighter tomorrow for themselves and their loved ones.

*The image in this post is courtesy of https://www.summitplanners.com/estate_planning/insurance-the-secret-tool-to-a-successful-estate-plan/

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Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is a Chartered Trust and Estate Planning (CTEP^®) professional who is committed to educating Filipinos about the value and importance of having an estate plan in their lives.