It is always a good idea to take all options and potential tactics into consideration when designing your wealth management strategy. One option that many people forget to weigh is life insurance. Having a life insurance policy in place can help to mitigate future issues which your intended beneficiaries may end up facing. 

Basics of life insurance 

Essentially, life insurance is a legal contract in which an agreement is made between you and the insurance company. In the context of this arrangement, you are known as the “insured” or the “policyholder” while the insurance company is known as the “insurer.” The terms of the agreement are that you, the policyholder, agree to pay the insurer monthly premiums but in the case of your death the insurance company agrees to pay a specific sum of money to your chosen beneficiary. 

Choosing life insurance as a part of your estate plan may be helpful to your intended beneficiaries when it comes to dealing with expenses which may arise as a result of your death. The life insurance pay out can come in handy when it comes time to distribute and manage the assets of your estate. 

The following are some common expenses your beneficiaries may have to deal with. 

Final costs 

There will likely be several last expenses which will arise upon your death that will require attention. One of the most obvious and significant ones will be the costs of your funeral which can typically be thousands of dollars. Your heirs may also be left with your debts as well as a variety of tax liabilities. This will also include what is owed on your final income tax bill. 

Estate tax liability 

If your estate is large enough, your heirs may have to pay estate taxes on their inheritance. On the other hand, the Federal tax code does allow for exemptions up to a certain value, but estate taxes will be due based on every dollar after the exemption limit. However, the limits for exemptions are constantly in flux which means you will want to consult with a wealth management professional to see if these exemptions apply to you. 

Supporting family and loved ones 

The payout from your life insurance policy may also be needed to help support a family member or loved one who is not able to sustain and support themselves financially for one reason or another. This may be a minor child, aging parents, or a widow. You may want to consider creating a trust in which the money will be held. 

Assets that are not liquid 

Another way that the life insurance policy payout can help with administering your estate is in the case of an illiquid asset, such as real estate. This type of asset is more challenging to divide among your intended beneficiaries. For example, if one adult child wants to sell the real estate while another wants it to live in, it can create a conflict. In this case, you may want to give the life insurance policy payout to the adult child who would prefer to not own the real property. 

Should you obtain life insurance? 

This is a question which will be different for each person. You may want to consider talking to a wealth management specialist to further understand your options surrounding this and other estate planning aspects.


The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.  Any opinions are those of the author and not necessarily those of Raymond James.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investmentPrior to making an investment decision, please consult with your financial advisor about your individual situation.  Raymond James and its advisors do not offer tax or legal advice.  You should discuss any tax or legal matters with the appropriate professional.

Life insurance policies have exclusions and/or limitations.  The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased.  As with most financial decisions, there are expenses associated with the purchase of life insurance.  Policies commonly have mortality and expense charges.  In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.  Guarantees are based on the claims paying ability of the insurance company.