Estate Planning3 min read

Insurance & Estate Planning

How life insurance and other insurance products protect your legacy, fund trusts, and minimize estate taxes.

Insurance & Estate Planning

Key Topics Covered

Insurance is a powerful estate planning tool that provides liquidity, funds trusts, and helps transfer wealth efficiently to the next generation.

Life Insurance in Estate Planning

Irrevocable Life Insurance Trust (ILIT): Owns your life insurance policy outside your estate, so the death benefit isn't subject to estate taxes. Critical for estates approaching or exceeding the federal exemption.
Estate Tax Liquidity: Life insurance provides immediate cash to pay estate taxes without forcing the sale of illiquid assets like real estate or a business.
Wealth Transfer: Permanent life insurance can transfer substantial wealth to heirs in a tax-efficient manner, leveraging the death benefit's income tax-free status.

Key Strategies

Premium Financing: Borrow funds to pay life insurance premiums, preserving liquid assets while maintaining coverage.
Second-to-Die Policies: Cover two spouses and pay out after the second death — when estate taxes are actually due. More affordable than individual policies.
Charitable Remainder Trusts: Combine life insurance with charitable giving for income tax deductions, capital gains avoidance, and legacy benefits.

Generation-Skipping Considerations

Life insurance can fund generation-skipping trusts, providing for grandchildren while potentially avoiding an additional layer of transfer taxes.

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Written by the Ensureing Team

Updated March 2026 · 3 min read

Frequently Asked Questions

If your estate may be subject to estate taxes (over $13.61 million for individuals in 2026), life insurance can provide liquidity to pay those taxes. Even smaller estates benefit from life insurance to equalize inheritance among heirs or provide for specific needs.

An ILIT is a trust that owns your life insurance policy. Since you don't own the policy, the death benefit isn't included in your taxable estate. This can save significant estate taxes for larger estates. Once created, an ILIT generally cannot be modified.

Life insurance proceeds are income tax-free to beneficiaries. However, if you own the policy, the death benefit IS included in your estate for estate tax purposes. Using an ILIT removes the policy from your estate, making the proceeds both income and estate tax-free.