Life Insurance for Estate Planning

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Considering life insurance for estate planning? Smart move! The right type of life insurance can provide substantial benefits to your heirs, help protect your business, and guarantee your legacy. In addition to a will, insurance policies—particularly those purchased through a trust—are one of the most secure financial tools to protect your estate. 

In this article, we’ll explain which type of policy is best for your goals and the benefits of using life insurance when planning your estate. 


Life insurance policies fall under two categories: term and permanent. Term life insurance expires after a predetermined amount of time. If you don’t pass away within this time period, it offers no benefits. Permanent life insurance is guaranteed to pay out a death benefit and lasts for your lifetime. What’s more, most permanent life insurance policies feature an investment component that grows wealth over time.

Of the various types of permanent life insurance that grow wealth (variable, universal, and whole life insurance), only whole life policies earn a guaranteed rate of return. The other types of insurance feature investment components that rely on market factors and can gain or lose value. On top of a guaranteed rate of return, whole life policies purchased through mutual insurance companies are also eligible for dividend payments. For families looking for the biggest payout and financial guarantees, whole life insurance is the most common type of life insurance for estate planning.

Read more: Estate Planning 101 — A Guide to Estate Planning With Life Insurance


#1. Life insurance avoids probate

Probate is the legal action of distributing assets. Most financial accounts and assets are subject to probate after you pass away. It can be a lengthy process (a year or more) and delays access to much of your estate, which can create financial difficulty for your heirs or business. Life insurance policies aren’t subject to probate. Policies are paid out quickly from your insurance company directly to your beneficiaries. This quick payout is especially helpful to families who need funds to cover burial costs and other final expenses

#2. Life insurance can help lower estate taxes

The current federal estate tax rate is 40%, which will eat up a significant portion of your wealth if your estate is valued over approximately $12 million, and state mandated inheritance taxes are triggered at even lower amounts (in some cases, as little as $1 million). However, life insurance policies paid directly to a beneficiary are generally exempt from taxes, and can offer further tax advantages when held in a trust, like an irrevocable life insurance trust (ILIT)

#3. Life insurance provides a business succession plan

There are a handful of ways to use life insurance to protect your business and guarantee its succession after you’re gone. One of the most common is called a buy-sell agreement, where the death benefit of a life insurance policy provides funds to a living business partner to buy out the portion of a business owned by the deceased’s family. In return, the family now has liquid funds with which they can use to pay estate taxes or debts, cover final expenses, supplement income or place in a trust for generational wealth.

#4. Life insurance protects families with special medical considerations

Whether a life insurance policyholder finds themselves needing disability or long-term care, or has a child or spouse with special needs whose government benefits would be in jeopardy after a large estate payout, the right policy can offer protection. Permanent life insurance policies can be customized with policy riders that offer supplemental coverage for disability or long-term care, providing a payout if needed while the policyholder is still living. This allows other estate assets to remain intact. Purchasing policies through a trust protects dependent children or a spouse.

5. Life insurance helps facilitate a financial legacy

From creating generational wealth to supporting charitable causes after you’re gone, the growth of a permanent life insurance policy can provide a significant financial legacy. The right trust can offer specific tax advantages to charities of your choice or support perpetual wealth in your family for generations. 


At Paradigm Life, we offer comprehensive insurance solutions for estate planning. Schedule a free virtual consultation and let us help you formulate a personalized wealth strategy using whole life insurance from the nation’s top-rated insurance companies. We’ll work with you and your current financial advisors to provide you with a secure estate plan you and your family can rely on for generations.

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