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Increasingly, agents are promoting insurance policies as a way of passing money on to your heirs tax-free. After all, death benefits from insurance policies are not subject to federal or state income taxes. Agents have also argued that the proceeds from a policy can help your survivors pay estate settlement costs, including estate taxes. However, for the average family, estate tax arguments have little relevance. The government has significantly lowered estate taxes over the years, and you must accumulate an estate of more than $600,000 before you owe any taxes.
In the unlikely event that you need to shelter your assets from estate taxes, you can save money by setting up trust accounts that accomplish the same goal. Although life insurance may be useful as an estate planning strategy if you are wealthy, you need the advice of an estate lawyer and an accountant. Be aware, however, that some lawyers and accountants who provide estate planning advice and steer you into life insurance may have a business relationship with the agent.