Insurance can provide cash to cover additional taxes if the insured dies prematurely.
Potential problems for life insurance Probate may be required if the estate is the designated beneficiary, if the designated individual beneficiaries are all deceased, or if a testamentary trust is intended to govern the distribution of the insurance proceeds. Business-owned insurance will normally be subject to the estate tax if business entity is controlled by insured, but there are some exceptions. The value of the business entity will always impact the taxable estate's value. Ownership by a spouse merely defers the tax. Ownership by one or more children can expose the insurance to the children's creditors' claims and can even get tied up in divorce proceedings.