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Why would I need life insurance in my estate plan?

Life insurance insures your life. So, when you die, the death benefit is paid to the policy's beneficiary. Life insurance death benefit proceeds can give your estate enough liquid assets to help complete your wishes. These include:

Maintain your family's lifestyle - life insurance death benefits may help by paying off debt and providing a lump sum of cash from which your family can draw in the event of your death.

Replace your income for your family – losing you may not only be an emotional loss, it could also be a significant economic loss. Life insurance death benefits can replace your lost income either in a lump sum death benefit or payable as a guaranteed income monthly. 

Creating equitable inheritance – leaving a significant asset to one heir could be balanced by the equivalent in cash (from the death benefit proceeds) to another heir.

Planning with a blended family – life insurance can help you provide your children from a prior marriage with an inheritance even if you leave your other assets to your current spouse.

Solve the need for cash and liquidity to settle an estate - to pay for administrative costs, gift taxes1 and estate taxes2. Your estate might have assets and family heirlooms that heirs may not wish to sell to pay expenses or that are not easily sold. That may include the family home, farm or bare land, artwork, collectibles, and more. Life insurance can be used to provide the necessary liquidity to pay the expenses associated with your estate settlement costs.

Help with business owner’s unique needs such as: 1) help your key employee buy the business from your spouse. That way the business can continue and your spouse has assets to live on or, 2) pass your business to your heirs by giving them the working capital to keep it going through the transition.

These are just a few examples of how life insurance can help address your estate planning needs. You can work with your insurance professional and other financial advisors to determine if you need more liquid assets (money) in your estate.



1Starting on January 1, 2011, the annual gift tax exclusion is $13,000 per donee and is indexed for inflation.  From January 1, 2011 to December 31, 2012, the lifetime gift tax exemption amount is $5,000,000 (indexed for inflation starting January 1, 2012); and, the maximum gift tax rate is 35%. 

2From January 1, 2011 to December 31, 2012, the federal estate tax exemption amount is $5,000,000 (indexed for inflation starting January 1, 2012); the maximum estate tax rate is 35%; and, the rules regarding step-up in basis for property transferred at death are reinstated.  Also over the same time period, if the executor of a deceased spouse’s estate so elects, the surviving spouse could later use his or her own unused estate tax exemption, plus the unused exemption of his or her most recent deceased spouse.

For more information on this subject, and professional guidance in selecting the right kind and amount of insurance coverage, contact your insurance professional.

This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Pacific Life refers to Pacific Life Insurance Company, and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York, and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each company is solely responsible for the financial obligations accruing under the products it issues, and its product and rider guarantees are backed by that company’s financial strength and claims-paying ability. Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company, and are available through licensed third party broker-dealers.