The Top 5 Uses for Life Insurance in a Comprehensive Plan

Anthony Sandomierski |

Too many financial advisors/insurance agents focus on hawking solutions first before really getting to know what a client’s needs are.

We use life insurance only in cases where it’s really needed and part of a comprehensive plan. Below are the top 5 uses we see in our practice:

1. Build Wealth from Scratch

  • This is really when someone really doesn’t have much of an estate
  • We’d take out life insurance to create a state for this client’s loved ones
  • Usually a cheap term policy

2. Secure Your Family’s Income

  • This is ESPECIALLY important for high income earners with a spouse/children that haven’t met their financial independence goal
  • We see FAR TOO OFTEN that high income earners neglect to have enough life insurance coverage to cover asset/income needs the lifestyle that their family is used to
  • This could usually be achieved through a relatively cheap term policy covering a number of years until the family has reached their financial independence goal

3. Cover Estate & Inheritance Taxes

  • This is the most common use we see for life insurance policies with our client base
  • The federal estate tax exemption is $15 mil a person starting in 2026 and set to increase for inflation
  • The federal estate tax rates is 40% for any amount subject to tax!!!!!
  • No one knows when they are going to die AND what the estate tax exemption will be in that given year
  • The estate tax exemption is a highly political issue and the exemption amount has been all over the place over the last 30 years

Here’s an example of what we typically setup:

  • The idea here is setting up an irrevocable life insurance trust (ILIT)
  • Take out a permanent life insurance policy (second to die payout for married couples)
  • Using up part of your gift tax/estate tax exemption to fund policy premiums
  • The death benefit pays out INCOME AND ESTATE TAX FREE if setup properly

Example Calculation:

  • $60 mil estate with $15 mil estate tax exemption = $45 mil taxable
  • $45 mil x 40% = about $18 mil in estate taxes
  • You’d try and setup a policy to cover some, all, or even extra to play it safe

This requires CAREFUL planning and A LOT of guidance

4. Smooth Business Transitions

  • This is very common for people who own businesses with partners
  • It’s a way to pay off a partner’s heirs in a clean/easy way
  • The partnership pays the premiums
  • The death benefit is received tax free usually by the partnership to give them the liquidity to pay off the heirs and buyout their ownership interest
  • This really helps when you don’t want to be partners with your partner’s heirs
  • This comes up WAY MORE than you may think and is relatively easy to setup if thought through properly with good guidance

5. Targeted Legacy Planning

  • Some people just want a life insurance policy for a particular reason
  • It could be for:
    • A long-time friend they care deeply about
    • A relative that could use some financial help
    • A friend or relative that relies on you for financial support
  • There’s all sorts of cases

Final Thought

Life insurance isn’t just protection—it’s strategic planning that can safeguard your wealth, your family, and your business.

Curious how this could work for your situation? Let’s explore a plan tailored to your goals.