However, while these purposes are important, this type of thinking ignores the fact that that life insurance can also be an extremely effective way of preserving or even creating an estate, providing a tax-free benefit for heirs, or creating a tax-free source of funds that can be used to pay the estate taxes
If you are a parent without a large estate, but want to pass along a nice benefit to your children or grandchildren, a permanent life insurance policy can accomplish this. It provides a guaranteed tax-free death benefit that can be divided cleanly amongst beneficiaries. Likewise, if you are a parent with a decent sized estate, a life insurance policy can be an effective way to both maximize the inheritance and provide a tax-free source of funds to pay estate taxes in a quick manner.
In some cases, life insurance can also serve as an effective estate equalizer. For example, many estates are comprised of assets that are not easily divided, or at least not agreeably divided. For many families, the bulk of the estate is comprised of property. Maybe one heir desires to preserve the asset while others would prefer cash instead. Life insurance is a great way to equally divide the estate without finding ways to divide assets such as property or provide for joint ownership.
These are just a few common and basic uses of life insurance as an effective estate planning tool. However, it is very underutilized mainly because most people are unaware that life insurance can and should be used for these purposes.
About the Author: Marc Roethel has over 7 years experience in the life and health insurance and retirement planning industries. He is CEO and co-founder of the LIFE1010™ program, which is designed to help individuals through a step-by-step process of getting their lives and businesses in order. The program focuses on emergency preparedness, creating an effective spending plan, health and wellness, and retirement planning. He is also co-author of the book "Not Yo Mama's Retirement Plan", which takes a fun and easy to understand approach to a risk-free and tax-free solution to retirement that is proven and mostly unknown by the majority of the population.