Life Insurance and Estate Planning

If you think about it, estate planning is probably the main reason why we buy life insurance. We want to make sure that those who will have to take care of our affairs after our passing will be able to do so without too many hassles and cost to them.


This page:

  • Explains using your life insurance for estate planning.

  • Advises which policy will be most effective for your needs.

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Settling your estate

A life insurance policy can guarantee your beneficiaries receive your estate in full.

You work hard to earn your money and take pride in the things you own. Most likely, you want to see all your personal assets passed on to your heirs intact. However, your estate, which includes not only your house and land, but also your money and investments must be settled when you die.


Some estate planning facts:

Settling an estate includes taking inventory of your possessions, assessing their value, and paying estate taxes based on its net worth. Depending upon how large your estate is, this may reduce its worth by a substantial amount.

Your beneficiaries are also required to pay a tax on the things they inherit from you. All valuable assets you've left to them will be subjected to a capital gains tax. Since the capital gains tax is based upon your net worth, it is possible that the tax will exceed the amount your beneficiaries can afford. If this is the case, they may be forced to liquidate part or all of your estate in order to cover the tax.

Avoiding the estate tax

To avoid the fate of having your estate significantly diminished by taxes, there are steps you can take. Purchasing a life insurance policy with a death benefit large enough to offset the amount of capital gains and estate tax you expect your estate to be subjected to, guarantees your beneficiaries will not be forced to sell your assets or be left with a fraction of your estate.

What your policy should cover

A life insurance policy designed with estate planning in mind should cover the immediate expenses precipitated by your death. Funeral expenses, fees associated with settling your estate, and other miscellaneous costs can really put a burden on your family. By reading estate planning info and making arrangements ahead of time, you can alleviate these concerns.

Since the death benefit from a life insurance policy is payable upon death, your family will have access to these proceeds instantly and can use them, if necessary, to pay any immediate financial obligations.

Using estate planning facts to your advantage.

Whole Life insurance guarantees the entire transfer of your estate to your heirs anytime during your life. Although term life insurance offers similar protection, you still run the risk of the policy expiring before you do. If this happens, or if you outlive your insurability under a term life policy, you lose your protection. To avoid this possibility we recommend purchasing a whole life insurance policy if you are using the policy to its full advantage.


Next: Using life insurance to protect your business

Learn even more:

Getting the lowest possible premium on your life insurance is almost like an art form. There are many variables to consider, and to get the right balance of term length, benefit amounts, and policy riders and illustrations, you need to take a careful step-by-step approach to the buying process.

Our free life insurance course is designed to help you do just that.

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