Estate Planning Life Insurance

Estate planning life insurance options include term, permanent, and life insurance trusts. Estate planning life insurance rates will vary depending on the type of life insurance you choose and how you want to accrue cash value. Most people use life insurance for estate planning to improve estate equalization or to cover expenses during the probate process.

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Aug 30, 2021

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The Rundown

  • Estate planning life insurance options can be through term or permanent life insurance
  • Using life insurance for estate planning can help diversify your assets and cover unforeseen expenses
  • Estate planning with life insurance can sometimes offer tax benefits or help skip the probate process

Shopping for various estate planning life insurance options can help you build a strong and reliable retirement platform. Your estate will rely on informed decisions and preparation.

Estate planning is already hard enough. We’ll break down estate planning using life insurance, ways life insurance can help with estate planning, and where to compare quotes before you buy estate planning life insurance.

Are you ready to learn more about estate planning and life insurance? Before we get started, take advantage of our free quote tool above to get instant quotes from top life insurance companies near you.

Is life insurance good for estate planning?

Life insurance can be one of the better estate strategies out there when considering the room for growth and flexibility. As with any estate or retirement solution, you’ll want to think about protection, taxes, and so on.

Your estate is something you’ve worked on building through years and years of work and investment. In short, your estate is the cumulation of assets you have.

There are technically different classifications of estates such as a probate estate, trust estate, and so on. Some of the common tools included in estate planning are wills, trusts, and life insurance.

Life insurance and annuities are considered valid estate planning resources according to the Insurance Information Institute.

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What role does life insurance play in estate planning?

Life insurance is designed to provide income for dependents or beneficiaries in most cases. Permanent life insurance options are more complex in the sense that they can contribute to your estate via cash value.

How can life insurance help your estate plan? One of the key features of permanent life insurance is that it accrues tax-deferred cash value. When you start to consider estate taxes, this can be a huge help.

With term or permanent life insurance, the death benefit can be used to cover inheritance taxes to avoid losing any of the estates. Using life insurance for estate planning helps provide flexibility to heirs.

Whether your beneficiaries are awarded a death benefit alone or with accrued cash value, they’ll be able to use the funds for whatever expenses they might need. Some examples include:

  • Estate Equalization
  • Final Expenses
  • Taxes
  • Business Ownership

Life insurance can also be used for special purposes such as divorce or other marriage-related expenses. Incorporating a life insurance policy with a death benefit helps to provide funds to pay for direct expenses while property and other assets are handled.

Which type of life insurance is a popular estate planning tool?

The type of life insurance you choose for estate planning will depend on your intended usage of the policy. If you simply want to provide your beneficiaries with some sort of cash to fund immediate expenses and taxes, a basic term life insurance policy will most likely suffice.

On the contrary, if you want the policy to accrue cash value so you have less trouble splitting your assets, a permanent life insurance policy will be preferable. Learning about the whole life insurance basics can be a good start.

Take a look at the table below to learn more about how term and whole life insurance compare when it comes to estate planning:

Comparison of Whole and Term Life Insurance for Estate Planning
Policy FeatureTerm Life Whole Life
CoverageSet period of time, usually 10, 20, or 30 yearsValid until the date of the insured’s death
Estate Planning UsageCover immediate expenses using the death benefitCover expenses and help with estate equalization
ExpenseLess expensive monthly premiumMore expensive monthly premium
Investment/RatesYou pay only for insurance, these policies don’t accumulate any cash value over time.Along with the death benefit, part of your payments are invested and the value accumulates over the years. Can be borrowed against and paid back at lower rate than available commercially
RenewabilityWill need to be renewed at the end of each term, and each renewal will reflect your increase in age and any health issues you’ve developed.Lifetime policy, so once in place does not need to be renewed.

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Permanent life insurance policies are all similar but each will accrue cash value at different rates and with different stipulations. If you want your beneficiaries to have control, there are other options.

Most notably, an irrevocable life insurance trust (ILIT) is available to those who want a beneficiary or trustee to handle the policy details relating to a life insurance policy.

How an ILIT works is that you (the insured) would work directly with your beneficiaries or trustees to create a policy that they can control while you’re still alive. This way, if either party has major changes in needs or status, there shouldn’t be any big issues trying to make policy changes.

Is irrevocable or revocable trust better? Many people prefer a revocable trust to the former. A revocable trust is more convenient in comparison since you can oftentimes skip the probate process.

Estate Planning Life Insurance: The Bottom Line

Estate planning can be a time-consuming and stressful process. Sometimes it’s helpful to include a life insurance policy whether it be for estate equalization or to cover various expenses.

By now, you should be ready to shop for versatile or affordable estate planning life insurance options. While you’re here, use our free quote tool to get instant life insurance quotes from life insurance providers near you.

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