Life Insurance is a Basic, Essential Part of Estate Planning

By John Henry Dreyfuss, staff.

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  • Life insurance is one of the foundations of a diversified and stable investment portfolio.
  • It offers financial flexibility, tax benefits, return on investment, asset protection, and asset accumulation.
  • The death benefit of life insurance is highly asset protected.


Insurance is the essential tool for shifting, managing, and sharing financial risk. Life insurance is the foundation of a balanced and effective investment portfolio. By making a relatively small investment in life insurance, the investor can gain significant financial leverage.

Term Insurance

The most common type of life insurance is called term insurance. Term insurance pays a death benefit at the death of the insured. If the insured person does not die within the specified term the policy expires. Term policies are the least expensive of all types life insurance.

Permanent Insurance

The death benefit is the amount paid to the beneficiary of a life insurance policy upon the death of the insured. The death benefit is paid tax-free to the beneficiary.

Other types of permanent insurance do expire, and some offer a return on investment. One such policy is cash-value life insurance can also provide a significant return on investment and revenue during the life of the insured. A CVLI policy is permanent and lasts for the lifetime of the insured. It does not expire.

A CVLI policy can offer an investment return that is tied to the S&P (Standard and Poor’s) index, or other broad market index. The policy’s cash values are invested and can return a capped amount. Losses can be capped as well. Options such as these make the various types of life insurance an exceptionally flexible tool for shielding wealth and protecting assets.

Life Insurance Trust

Life insurance becomes part of the estate of the insured person. The death penalty from an insurance policy can be used to fund a trust. This offers a number of estate-planning advantages. Use our “Ask Mike” feature for answers to your questions about a irrevocable life insurance trust (ILIT).

An ILIT can also provide additional financial flexibility. For instance, the insured can ask that the ILIT be drafted in a way that only allows the children access to the assets in the ILIT for specified expenses and life events. For instance, the ILIT can be structured so that it pays the children’s graduate school tuition, or other specific affair. The ILIT can protect assets and offer extraordinary financial flexibility for multiple generations.

Tax-free Accumulation

One way to view life insurance in general is as a product that can provide a physician with a tax-efficient investment tool. By investing relatively small life insurance premiums into the policy for a set period, the insured can receive a healthy return on investment.

Some physicians invest large sums of money annually into life insurance policies. These investors have some interest in the death benefit, but they are primarily interested in the fact that life insurance offers a simple form of wealth accumulation. It does this by transferring a relatively large sum of money to the estate of the deceased immediately upon his or her death. The appropriate life insurance policy can help a family accumulate a significant amount of wealth, both during and after the life of the insured.

Life Insurance as an Investment

Some certified financial planners, including’s Mike Berry, believe that CVLI can outperform mutual funds as a retirement strategy. We will discuss this phenomenon in a separate article. In the mean time, Ask Mike.

Life insurance is viewed by financial advisors as one of the foundations of a diversified and stable investment portfolio. Life insurance offers flexibility, tax benefits, return on investment, asset protection, and asset accumulation, all in one highly protected vehicle. It is easy to see why this will be the foundation of your portfolio.

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