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Life Insurance and Estate Planning

one person handing another person pen and document to sign

We have said it many times - everyone should have an estate plan, and life insurance is integral to that plan. Life insurance and estate planning cannot be separated. Regardless of your age, marital situation, or wealth, we always recommend that people have a plan for when they pass on. Here is why life insurance is an essential part of your estate plan.

Life Insurance Provides Immediate Cash

When someone with a life insurance policy passes on, the policy will provide a cash payout to the beneficiaries of the policy. These are people who most likely had a very close relationship with the deceased, so they are going through a hard time. This cash can help them through the situation.

  • If there are significant estate taxes to be paid, beneficiaries can use the cash from the life insurance policy to pay the taxes.

  • The money can be used to pay for funeral and burial costs, which are not insignificant.

  • If the beneficiary struggles with living expenses, it can help them pay their bills.

  • The beneficiary may have accumulated debt, and the cash can help them pay off the debts and breathe easier.

  • The cash may make it easier to divide everything up among loved ones.

  • If you have some final income taxes, the cash can help pay that off.

The point is that cash is almost always welcome and can be used by your beneficiaries.

Life Insurance is Straightforward

Another reason why life insurance and estate planning go hand in hand as part of your estate plan is that it's relatively simple and straightforward.

Some things can be more complex. For example, suppose you have a lot of assets in your name. In that case, deciding how to divide them among your beneficiaries may take time. Likewise, with business owner estate planning, there are a few more things to consider, like how the business's ownership will be managed when the current owner passes away.

Life insurance is different. You go through some upfront work, such as going to your doctor for a medical exam- which you're (hopefully) already doing - and signing up with your life insurance company. Then, you pay into it until you pass on, and your beneficiaries receive the payout.

Life Insurance Avoids Probate

In the estate planning world, a lot revolves around doing what you can to avoid a lengthy California probate process.

One great thing about merging estate planning and life insurance is that it will not have to go through probate. There is no court process for determining how life insurance pays out. It is paid to the beneficiaries, and everything is done.

Your loved ones will be thankful to have one less thing to deal with as part of the probate process. They'll get the cash quickly so it can be used to do what they need to do.


As you consider combining estate planning and life insurance, one thing to consider is what's called an irrevocable life insurance trust, or ILIT. Why is this a smart move? Because it has tax benefits - a typical policy's payout is included as part of your estate when estate taxes are estimated. With an ILIT, it's not factored into your estate.

Call us at 714-663-8000 or send us an email. We'd be happy to explain more about trusts, life insurance, and any other aspect of estate planning you have questions about.


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