Life Insurance in Estate Planning

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Learn how life insurance in estate planning can provide financial security for your family. The Law Office of Paul Black can help you create a plan that meets your needs. Call us.

Author: Paul Black

Paul’s experience as the son of two parents with big health challenges is what led him to the work he does today and gives him first-hand knowledge of the challenges that many caregivers and family members face. After graduation from GSU Law, Paul was chosen from dozens of applicants nationwide as one of three 2010-2011 Borchard Foundation Law & Aging Fellows. Paul has been named as  a SuperLawyers “Rising Star” in the area of Estate Planning and as a member of Georgia’s “Legal Elite” by Georgia Trend magazine. Published on: June 14, 2023.

Life Insurance in Estate Planning

Life Insurance in Estate Planning sec

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Death often comes when you least expect it. Are you prepared for what happens after your death? Many are not. They are left wondering what the fate of their loved ones will be after their passing.

A life insurance policy combined with estate planning and risk management might be your answer. Combined, these elements can provide your family with financial support after death.

The following Life Insurance in Estate Planning guide can assist you in getting started.

How Can Life Insurance Benefit Your Estate?

Survivors deal with the deceased person’s assets and liabilities while grieving. However, life insurance policies can make estate planning more manageable.

A life insurance policy provides financial support for family members. It also protects business assets after the death of the policy owner. Listed below are a few reasons for integrating it with your estate plan.

Estate Taxes

Usually, family members have to pay federal estate taxes within nine months of the deceased’s death. Some states may also impose estate taxes.

The federal estate tax will depend on the value of the deceased’s gross estate. A life insurance policy can help you avoid estate taxes. That is because life insurance proceeds are tax-free.

Business Property Insurance

When you choose permanent life insurance, you gain access to a savings component. The policyholder can borrow the cash value as a cushion if the business experiences difficulties.

You can also use the policy’s proceeds as collateral for a business loan. In some cases, it can finance a buy-sell agreement. Buy-sell agreements stipulate the prices and conditions of buying the deceased’s shares.

Surviving shareholders will receive death benefit proceeds if you pass away. Your family will also get compensation for your ownership stake in a business.

Quicker Payments

After death, family members have to deal with several final expenses. Some of them include:

  • Outstanding debts

  • Final income taxes

  • Funeral expenses

The process of liquidating assets to provide funds can be time-consuming after death. In contrast, your family can claim the death benefit of a life insurance policy immediately. That means your family can have money to cover these funeral costs. That will immensely reduce the financial burden of death on your family.

Estate Equalization

Multiple heirs to an estate inheritance can result in complications. When dividing assets is problematic, conflicts may arise. Sometimes, splitting family businesses can also reduce their ability to generate revenue.

In such cases, you can use life insurance to share equal inheritance. For instance, one heir may receive property while another inherits the insurance policy’s death benefit.

Types of Life Insurance for Estate Planning

The main types of life insurance are term life insurance and permanent life insurance.

Term Life Insurance

Term insurance is purchased annually and usually increases in cost as a person gets older. Your named beneficiary will receive the death benefit. That is on the condition the policyholder pays the life insurance premiums until death.

Term insurance is like fire, wind, vehicle, and hospital insurance. You pay only for the protection with no capital value accumulation.

Permanent Life Insurance

Permanent insurance is term insurance with an accompanying savings plan. There are many varieties of permanent life insurance, all of which combine a savings plan with insurance protection.

The cash savings value buildup comes with a rate of interest stipulated in the policy. However, the insurance company will remove savings if you cancel the policy.

Premium payments are higher for permanent life insurance policies compared to term insurance. That is because some of the premium goes to purchase a savings plan.

Essential Factors to Consider When Buying a Life Insurance Policy

If you have ever tried to purchase life insurance, you are likely aware of the numerous options. It can be challenging trying to buy the right life insurance policy.

However, the following are some factors to consider when you buy insurance to make things easy:


Are you the primary earner in your household? If yes, consider life insurance policies offering immediate financial support to your family. The right policy should aim to help your family replace lost income.

Healthcare Costs

You can not predict the type of care you will need in your old age. However, one thing is sure: healthcare costs are steadily going up. A life insurance policy can provide the necessary funds to cover unexpected medical costs.

Family Size

Perhaps you are wondering, How Much Life Insurance Do I Need? People who rely on you financially might give you answers. Consider your surviving spouse, children, business partners, and employees.

If your family is fairly large, consider having more than one named beneficiary. Alternatively, you can take out multiple life insurance policies.

Business Ownership

Whole life insurance policies are commonly used to divide businesses after one’s death. You can also utilize a buy-sell agreement. That helps to ensure surviving business partners have the capital to buy shares after your death.

How Can Life Insurance Fit Into Your Estate Plan?

Your life insurance typically serves three primary purposes in estate planning.

  • It supplies beneficiaries with death benefits.

  • It provides liquidity, which can be advantageous for your estate.

  • It enables family members to obtain financial support.

There are many strategies for maximizing your life insurance payout for estate planning. However, many estate planning lawyers recommend creating an irrevocable life insurance trust.

Irrevocable Life Insurance Trust

An irrevocable life insurance trust (I.L.I.T.) will help you manage your term or permanent policy while alive. With an I.L.I.T., you can transfer your policy to the trust or use the trust to purchase life insurance. As such, the trust owns the life insurance.

The trust document will establish who administers the assets, receives the benefits, and the conditions.

Since the trust owns the insurance, it reduces estate taxes on assets not qualifying for a charitable or marital deduction. It can also aid in administering and distributing proceeds upon the insured’s death. It provides immediate liquidity to the insured’s estate and beneficiaries.

Tax Implications of Life Insurance in Estate Planning

The value of an estate may increase or decrease based on federal and state taxes. The estate tax is usually due nine months after the owner’s demise. Life insurance can help you reduce the financial burden of inheritance taxes. Your beneficiaries will receive Life Insurance Taxable Estate Proceedings

In most cases, insurance settlements come with less taxation.

You can get assistance developing a strategy that caters to your requirements from the Law Office of Paul Black. Call us now.

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