What Is the Role of Life Insurance in Estate Planning?

The role of life insurance in estate planning is quite significant due to the benefits that can be derived from the application of life insurance toward either the estate or other stated beneficiaries of the insurance plan. As such, some of the roles of life insurance in estate planning include the provision of immediate liquidity that can be applied toward identified needs at the death of the insurance plan owner, involving the provision for the needs of any beneficiaries. Life insurance in estate planning can also be applied toward securing any material assets left behind by the deceased.

One of the uses of life insurance in estate planning is for the provision of finances that can be used to take care of any loose ends, including the burial of the deceased and the provision of finances for the living dependents who would have lost any potential wages that the holder of the life insurance would have brought home over the years. The obvious benefit of this is the fact that it gives dependents more security in terms of finances and more confidence for the future, knowing that any outstanding debts that were not taken care of before the insurance holder's death will be settled by the life insurance. For instance, if a person had outstanding estate taxes and the heirs lack any funds for settling such debt, the finance derived from the life insurance could serve as a means for the settlement of that debt. It is important to note in this type of situation the fact that immediate access to cash will remove the necessity for the heirs of the deceased to sell off part of the estate or any other inheritance in other to raise the money required to settle the outstanding debt.

The value of life insurance in estate planning is derived from the fact that such access to finances will also give the heirs of the deceased bargaining power in terms of purchasing any business concern of the deceased. For example, consider a scenario where three business partners form a company from scratch and build it into a successful organization. Assuming two of them get on the company’s private plane on their way to a business trip and the plane crashes, the heirs of either of the deceased will have the financial wherewithal to purchase the interest of the other should the heirs decide to sell their portion of the business.