One of the goals of estate planning often is to leave assets to your heirs in the most efficient manner. Life insurance can play an important role in helping achieve this goal. Life insurance proceeds can provide a ready source of cash to pay estate taxes so beneficiaries will not be forced to sell an asset, such as a business or home, at an inappropriate time.

In this section you will learn about:

  • Using life insurance to help maximize wealth transfer
  • Making practical ownership decisions
  • The irrevocable life insurance trust (ILIT)
  • Different types of life insurance

Life insurance can be used to provide income-tax-free benefits to spouses, partners, or other beneficiaries. This insurance:

  • Avoids the expense and delays of probate at death because the proceeds are paid directly to your designated beneficiaries. (This may benefit a spouse or partner who is handling final expenses or raising children or has other expenses, such as a mortgage.)
  • Provides a way to accumulate capital that can grow income-tax-free.
  • Provides death benefits that will not be subject to income or capital gain taxes.
  • Offers liquidity needed if you own part of a business for a surviving owner to buy your interest via a buy-sell agreement. (With a buy-sell agreement, you can provide for an orderly transfer, allowing employees and co-owners to retain their positions in the company.)
  • Replaces estate taxes or income taxes that your spouse, partner, or other beneficiaries may owe at your death on retirement assets (such as IRA assets, annuities, or other assets).
  • Gives you the opportunity to leave a bequest to your favorite charities upon your death, provided the charities are the named beneficiaries.

These are just a few of the potential benefits life insurance offers. After evaluating your situation, you may want to consider purchasing or maintaining life insurance to help meet your financial and/or estate planning goals. Your attorney can verify state rules on insurable interest to help ensure life insurance is an appropriate planning option.

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