Estate Planning with Life Insurance: A Guide for Insurance Brokers in New York

Life insurance isn’t just a product; it’s a solution that can completely transform how your clients (and their family members) approach estate planning.

For brokers in New York, understanding the role that life insurance plays in estate planning can transform how you serve your clients and grow your business.

Let’s take a closer look at how life insurance and estate planning work together.

What Is Estate Planning, and Why Does Life Insurance Belong in the Conversation? 

Estate planning is all about ensuring that a person’s assets are distributed according to their wishes. It’s more than just creating a will. It’s about reducing financial stress for loved ones, minimizing taxes, and securing a seamless transfer of wealth. 

Life insurance for estate planning fits perfectly here because it can provide liquidity, cover taxes, and even ensure a legacy for beneficiaries. If you’re not already discussing life insurance with your clients as part of their estate plans, it’s time to make it a core part of your approach. 

How Does Life Insurance Support Estate Planning? 

Liquidity When It’s Needed Most 

One of the biggest perks of life insurance is that it provides immediate cash flow to beneficiaries in case of sudden expenses.

Often, estates include assets like property, businesses, or investments that can be difficult to liquidate quickly. Life insurance ensures cash is available to cover obligations such as estate taxes, burial costs, and outstanding debts, reducing the risk of financial strain on grieving families. 

Covering Estate Taxes 

Federal and New York state estate taxes can be significant, depending on the size of the estate. For many clients with sizable estates, these taxes can quickly eat into their wealth. By adding life insurance into the mix, you can offer a way to cover these taxes without forcing the sale of valuable assets. 

Leaving a Lasting Legacy 

Life insurance allows your clients to pass down financial security and a legacy to their loved ones. Whether they want to ensure their children have funds for college tuition or set up a charitable donation, life insurance offers flexibility and peace of mind. 

Who Should Consider Life Insurance in Their Estate Plan? 

Life insurance and estate planning work hand in hand, but who actually needs them? 

Clients with Substantial Estates 

If your clients have estates that may exceed the federal estate tax exemption or New York’s exemption ($6.58 million as of 2023), they’re prime candidates for integrating life insurance into their estate plan. The payout can help cover substantial estate taxes, which ensures their wealth remains preserved. 

Families with Younger Dependents 

While this might seem obvious, many people overlook how life insurance can also serve as a safety net for education and living expenses, should something unexpected happen. 

If your clients have dependents who rely on their income, life insurance becomes crucial – especially if there is a child with special needs.

Business Owners 

Clients who run businesses face unique estate planning challenges. Life insurance can be a lifeline for ensuring business continuity. For example, a policy can be structured to fund buy-sell agreements, debt repayments, or transitions of ownership. 

What Are the Types of Life Insurance for Estate Planning? 

Term Life Insurance 

Ideal for younger families or clients with a short-term need, term life insurance provides affordable coverage for a specified period. It’s a solid option for ensuring dependents are financially supported during crucial years. 

Whole Life Insurance and Permanent Life Insurance Policies 

For older clients or those with substantial estates, whole life or universal life insurance (a type of permanent life insurance) policies are an excellent choice. Not only do these options provide a guaranteed death benefit, but they also accumulate cash value over time, which can be leveraged as part of other financial strategies to replace lost income. 

Survivorship Life Insurance 

This specialized policy covers two lives (typically a couple) and pays out after the second death. This makes it an excellent tool to pay estate taxes while maximizing benefits to heirs. 

Structuring Life Insurance Policies to Fit Estate Goals 

Using a Life Insurance Trust 

Have you talked to your clients about an Irrevocable Life Insurance Trust (ILIT)? This powerful estate planning tool not only keeps the policy’s death benefit out of the taxable estate but also allows your clients to maintain control over how funds are distributed. 

Leveraging Riders for Customization 

Life insurance products today are highly customizable. Riders like long-term care benefits or spousal coverage can be added based on a client’s individual needs, ensuring they’re getting maximum value from their policy. 

Ensuring Proper Designation of Beneficiaries 

One of the most common mistakes in estate planning with life insurance is improper beneficiary designations. Ensure your clients review and update their beneficiaries regularly to match their current wishes and family circumstances. 

How Can Insurance Brokers Add Value in Estate Planning? 

Provide Tailored Recommendations 

The best strategies aren’t one-size-fits-all. By understanding your clients’ unique needs and goals—whether it’s minimizing taxes, protecting dependents, or securing a legacy—you can offer tailored solutions that stand out. 

Collaborate with Estate Planning Attorneys 

Team up with estate planning law firms, like the Law Offices of Vlad Portnoy, to provide holistic solutions for your clients. By working together, you can provide clients with cohesive plans that cover both legal and financial aspects of their estates. 

Educate Your Clients 

Many people don’t fully understand the connection between life insurance and estate planning. Take the time to educate your clients about the benefits and how life insurance can safeguard their legacy. 

Common Questions Your Clients May Have About Life Insurance and Estate Planning 

Can Life Insurance Reduce Taxes on an Estate? 

Yes, life insurance can provide the cash needed to cover estate taxes, ensuring other assets don’t have to be sold. Additionally, setting up an ILIT can keep life insurance proceeds outside of the taxable estate entirely. 

Is Life Insurance Necessary for Smaller Estates? 

Even for smaller estates that fall below the tax exemption threshold, life insurance plays an important role. It can provide financial security for dependents or help fulfill philanthropic goals. 

Is My Life Insurance Properly Aligned with My Estate Plan? 

Working with a New York estate planning attorney can help you ensure everything is in sync. From policies to trusts and wills, it’s important to regularly review and update these documents as your circumstances change.

Collaboration Is Key with the Law Offices of Vlad Portnoy 

At the Law Offices of Vlad Portnoy, we know that every estate planning strategy is unique. By integrating life insurance with legal strategies, we help clients protect their wealth, provide for their loved ones, and achieve peace of mind. 

If you’re an insurance broker serving clients in New York and want to offer a more comprehensive service, collaborate with us to help your clients build sustainable plans for the future. 

Contact the Law Offices of Vlad Portnoy today and start simplifying estate planning with life insurance.