An estate plan cannot be effective unless it has taken insurance into account. That task is a lot harder now that insurance has evolved to serve more purposes. Over the years, the traditional purpose of insurance as part of an estate plan has remained largely unchanged.
Life insurance is the tool to provide income to beneficiaries of an insured who dies.
The benefit is paid quickly outside of probate and is largely free of income tax consequences for the recipients. But insurance has begun to serve other estate planning purposes, as well. Increasingly, it is being used to protect assets in the estate of the insured and to serve as a hedge against estate taxes. In addition, a hybrid is emerging that allows businesses that are family owned to continue operating after the death of their founders. Moreover, while insurance helps keep the estate intact after the death of the insured, it can also protect clients nest eggs while they are still alive.