Life insurance is a non-testamentary account that is created by an individual for the benefit of his, or her, designated life insurance beneficiaries. Life insurance is a contract between the individual who purchases the policy and the life insurance company. Life insurance polices designate named beneficiaries who are to take in the event of the death of the creator of the life insurance policy.
Life insurance policies take many forms and may be for protection or investment. The most popular form of life insurance is term life insurance. This applies when an individual pays premiums to the insurance company, base don the contract signed between the parties, to continue the life insurance for a designated period of time. As long as the individual pays the monthly premiums he, or she, will be covered by the life insurance policy in the event that the individual dies during that period of time.
When applying for life insurance an individual will be required to undergo a physical, describe pre-existing conditions, personal habits, and a number of other factors that the life insurance company will take into account when deciding whether to insure you and, if so, how much money you will be required to pay for a specific amount of coverage.
Life insurance is considered a non-testamentary document. This means that it does not go through the costly and time consuming process of probate. The life insurance policy is deemed to be a part of contract law and for that reason does not go through the probate process. Life insurance is also shielded from your creditors. Life insurance may not be attacked by your creditors or the federal government. Upon your death the life insurance proceeds are deemed to be the personal property of the beneficiaries, and as such, may not be attacked by creditors of the decedent.
Life insurance policies are also exempt from consideration of estate taxes. The estate tax for 2011 is 35% for assets, at death, of more than $5 million. A way to avoid estate taxes is to place your assets in the form of a life insurance policy. A life insurance policy is considered non-testamentary and, like a trust, is not considered the property of the estate and may not be used in calculating the estate tax.