For most families, a life insurance policy is a way to protect themselves from the unexpected. If a spouse, a parent, or other relative passes away before their time, the insurance policy will pay a death benefit. This benefit can provide immediate financial relief, covering the costs of a funeral and ensuring that an unexpected death doesn’t devastate a family’s finances. However, life insurance can be leveraged in other ways. Since life insurance policies aren’t typically subject to probate, they can be used to shore up a conventional estate plan, providing flexible inheritances for heirs while minimizing the risk of high-rate taxation. Read more to learn about insurance planning, or contact Beacon Legacy Law today to schedule your Vision Meeting. The 3 Types of Life Insurance Policies Life insurance policies typically fall into three distinct categories, each with its own advantages and drawbacks. These include: Term Life Insurance Term life insurance provides coverage for a set period of time. If the policyholder passes away before the term expires, the beneficiary will receive the benefit. If they pass away after the term expires, no benefit will be paid. Whole Life Insurance Whole life insurance, or “permanent life insurance,” provides coverage for as long as the policyholder continues to make payments. Most whole life insurance policies will pay benefits upon the policyholder’s death. Universal Life Insurance Universal life insurance policies are more complex than term and whole life insurance policies. They consist of several components, including a “cost of insurance” component and a cash-value “savings” component. Policyholders may be able to invest a portion of their policy, and they typically have more flexibility when altering their premium amount and death benefits. The Benefits of Incorporating a Life Insurance Policy into Your Estate Plan Purchasing a life insurance policy offers benefits beyond ensuring your family’s financial well-being. Depending on your financial circumstances and estate planning goals, you could use your policy to eliminate or reduce burdensome estate taxes, minimize inequitable inheritances, or leave resources for heirs with special needs. Eliminate or Reduce Estate Taxes The Internal Revenue Service levies a graduated estate tax on all estates with a value exceeding a pre-specified threshold. In 2025, this threshold is set at $13.99 million per person, with rates ranging up to 40%. Life insurance policies can help offset these costs by shielding an inheritance from probate and estate tax. Minimize Inequitable Inheritances If you own assets like a family business, distributing shares or ownership to your surviving heirs could prove very challenging—especially if some of your children aren’t as invested as others. Life insurance lets you eliminate the possibility of leaving an unequal inheritance by ensuring that other heirs still receive death benefits. Leave Resources for Vulnerable Heirs Life insurance policies can be leveraged to provide a safe form of inheritance for heirs with special needs, providing a strong layer of support without stripping your estate of other resources. Our Florida Estate Planning Lawyers Can Help You Use a Trust to Protect Your Family’s Life Insurance Proceeds If you’re planning to use life insurance to leave a large inheritance, simply purchasing a policy in your individual name could increase the overall value of your estate—potentially negating some of the benefits of buying a policy in the first place. However, depending on your family’s needs and your long-term goals, you may be able to use other estate planning tools, e.g., an irrevocable life insurance trust (“ILIT”), to ensure that death benefits are kept safe from probate and the long arm of the Internal Revenue Service. Special Needs Trusts A special needs trust is a trust that is established for an heir or beneficiary with a disability. Since state law and federal rules place an income limit on many different types of disability benefits, leaving a direct inheritance can make it difficult for heirs to retain their eligibility. Special needs trusts may stipulate that trust funds be used only for certain authorized expenses, like education, rent, and general maintenance. Disbursements can be structured to cover necessary expenses with minimal risk to the recipient’s benefits. Irrevocable Life Insurance Trusts (ILITs) An irrevocable life insurance trust, or ILIT, lets the grantor: Transfer ownership of an existing policy to the ILIT, or Make payments on the premium of a policy purchased by the ILIT. Since ILITs are irrevocable, their proceeds will typically be segregated from your other estate assets. This means that they likely won’t be subject to probate.
