How to Use Life Insurance in Estate Planning

Life insurance is often thought of as a way to provide for loved ones after your passing, but its role in estate planning goes much deeper. When used strategically, life insurance can solve problems, create opportunities, and provide financial security for your family.

Key benefits of life insurance in estate planning include:

1. Immediate liquidity. Estate settlement often takes months, but your family may need funds right away to cover funeral costs, mortgage payments, or everyday expenses. Life insurance proceeds are typically paid quickly and outside of probate.

2. Equalizing inheritances. If you plan to leave a family business or property to one child, you can use life insurance to provide an equivalent inheritance to other children, helping to maintain family harmony.

3. Covering estate taxes. For larger estates, estate taxes may be due shortly after death. Life insurance held in an irrevocable life insurance trust (ILIT) can provide tax-free funds to cover these expenses without reducing the inheritance for your loved ones.

4. Protecting business interests. Business owners often use life insurance to fund buy-sell agreements, ensuring the smooth transfer of ownership and financial stability for partners.

5. Providing for long-term needs. Life insurance can support minor children, a surviving spouse, or family members with special needs, giving you the confidence that they will be cared for.

Life insurance is not one-size-fits-all. The right type of policy-term life, whole life, or universal life-depends on your goals, family situation, and financial resources. An estate planning attorney can help you evaluate your options and create a plan that uses life insurance strategically to meet your needs.