Essentials for Your Future: Your Guide to Insurance, Borrowing, Trusts, Wills, and Estate Planning

INTRODUCTION

Life throws unexpected curveballs. This handout empowers you to navigate them with confidence. We'll delve into essential financial tools like insurance, borrowing strategies, trusts, and wills. Whether you're just starting out or looking to solidify your plans, this guide provides the knowledge and tools you need to safeguard your assets and ensure a secure future for your loved ones. Let's take control of your financial well-being together!

UNDERSTANDING INSURANCE

What is Insurance?

A financial safety net that protects you from unexpected events that can cause financial hardship.

Types of Insurance:

• Life Insurance: Provides financial security for your beneficiaries upon your death. (Sub-categories like Term Life, Whole Life)
• Health Insurance: Covers medical expenses in case of illness or injury. (Types like HMO, PPO)
• Disability Insurance: Pays you income if you become disabled and unable to work.
• Homeowners/Renters Insurance: Protects your property and belongings from damage or loss.
• Auto Insurance: Provides financial coverage for accidents involving your car.

Benefits of Insurance:?

Provides peace of mind, protects your assets, and ensures financial stability for your loved ones in your absence.

Action Steps:?

Review existing policies, meet with an insurance agent to assess your needs, and choose the right coverage.

BORROWED INSURANCE

What is Borrowed Insurance?

A type of insurance that a lender may purchase to protect a financed asset when the borrower fails to maintain the required insurance coverage. This typically applies to car loans, mortgages, and other secured loans where the lender has an interest in the collateral.

Steps:

• Loan Agreement - Borrower agrees to maintain insurance on the collateral (e.g., car, home).

• Insurance Requirement - Borrower buys and maintains required insurance coverage.
• Verification - Lender verifies borrower’s insurance.
• Lapse/Inadequate Coverage - Lender is notified if insurance lapses or is inadequate.
• Notification - Lender notifies borrower and gives time to obtain proper insurance.
• Lender-Purchased Insurance - If borrower fails to get insurance, lender buys insurance to protect collateral.
• Charge to Borrower - Cost of lender-purchased insurance is added to borrower’s loan balance or billed separately.
• Coverage - Lender-purchased insurance covers the collateral but may not include liability coverage.
• Proof of Insurance - Borrower can reinstate their own insurance anytime, and lender will cancel lender-purchased insurance.

Understanding and maintaining the required insurance coverage is crucial for borrowers to avoid the additional costs and limited coverage associated with lender-purchased borrower’s insurance.

TRUSTS

What is a Trust??

A legal arrangement that holds assets for the benefit of beneficiaries.

Types of Trusts:

• Revocable Living Trust: Allows you to retain control of assets during your lifetime, then distributes them according to your wishes upon death.
• Irrevocable Trust: Assets transferred to this trust cannot be easily accessed and provide tax benefits.
• Special Needs Trust: Protects assets for a disabled beneficiary to ensure continued eligibility for government benefits.

Benefits of a Trust:?

Avoids probate (court process), controls distribution of assets, protects beneficiaries, and reduces estate taxes in some cases.

Considerations:?

Consulting with an attorney to determine if a trust is right for you and choosing the appropriate type.

?WILLS

What is a Will??

A legal document that outlines your wishes for distributing assets after your death.

Benefits of a Will:?

Ensures your assets go to your intended beneficiaries, appoints a guardian for minor children, and avoids legal disputes.

What a Will Can Include:

• ?Distribution of assets (property, investments, etc.)
• ?Appointment of an executor (carries out the terms of the will)
• ?Designation of a guardian for minor children

Considerations:?

Updating your will regularly to reflect changes in your life and family situation.

?ESTATE PLANNING - THE BIG PICTURE

What is Estate Planning??

The process of creating a plan for managing, distributing, and minimizing taxes on your assets upon death.

Benefits of Estate Planning:?

Ensures your wishes are honored, minimizes family conflict, and reduces tax burdens on your beneficiaries.

Estate Planning Considerations:

?Inventorying your assets and liabilities

?Choosing beneficiaries

?Selecting an executor and guardian

?Minimizing estate taxes (consult a tax professional)

GETTING STARTED WITH ESTATE PLANNING

• Gather important documents: Titles, deeds, insurance policies, bank statements, etc.
• Inventory your assets and liabilities
• Consider your wishes for asset distribution
• Meet with an estate planning attorney
• Create a will and consider establishing a trust if applicable
• Review and update your estate plan as life circumstances change