Estate planning and life insurance
Should life insurance be part of your estate plan?
Will the resources you leave behind be enough for the people and priorities that
matter to you? Life insurance can be part of an estate plan when you want to provide
money to beneficiaries after your death.
A death benefit may help with final expenses, remaining financial obligations, ongoing support, or money you want to leave behind. Whether life insurance belongs in your plan depends on the need you want to address, the resources already available, and how long that protection is needed.
Life insurance is one potential part of a broader estate plan. It is not a substitute for a will, other legal documents, or professional legal, tax, or financial guidance.
What role can life insurance play in an estate plan?
An estate plan may involve assets, beneficiary designations, and legal documents
that help carry out your wishes. A life insurance policy can complement those
resources by providing a death benefit when the insured person dies while coverage
is in force and claim requirements are met.
Depending on your circumstances, beneficiaries may use that money for needs such as:
- Funeral and final expenses
- Outstanding debts or bills
- Mortgage or other housing costs
- Financial support they relied on
- Money you want to leave to family members or other beneficiaries
The starting point is the financial need, not an assumption that everyone needs life insurance for estate planning.
When might life insurance have a role in an estate plan?
Life insurance may have a role when you expect a financial need to remain after
your death.
Someone depends on you financially
If a spouse, family member, or another person relies on your income or financial
support, a death benefit may provide additional resources after your death.
Financial obligations may remain
Housing costs, debts, final expenses, and other bills may continue or become due.
Life insurance may provide money beneficiaries can use to help manage those
needs.
You want to leave money to beneficiaries
A life insurance policy allows the policy owner to name beneficiaries. When policy
and claim requirements are met, the death benefit may provide money for the people
or organizations you choose.
The need has a particular time frame
Term life insurance is designed to provide coverage for a specified period, while
permanent life insurance is designed to provide lifetime coverage if required
premiums are paid and policy terms are met. Permanent life insurance may be
relevant when the need could continue throughout life. Neither type is automatically
better for estate planning.
How do term and permanent life insurance differ?
The main difference is how long the coverage is designed to last. Within the AARP
Life Insurance Program from New York Life, Level Benefit Term Life Insurance can
last to age 80, while Permanent Life Insurance can last for life as long as required
premiums are paid and policy terms are met.
| Feature | AARP Level Benefit Term Life Insurance | AARP Permanent Life Insurance |
|---|---|---|
| Coverage duration | Can last to age 80 | Can last for life if required premiums are paid and policy terms are met |
| Rate structure | Lower initially and increases over time | Rates do not increase |
| May align with | Coverage for a defined period | Lifetime coverage, subject to required premiums and policy terms |
| Future flexibility | Eligible coverage may be exchanged for Permanent Life Insurance, subject to terms | Already designed for lifetime coverage |
A useful comparison starts with how long the financial need may last, along with the policy structure, eligibility requirements, and other financial resources available.
How much life insurance might you need for an estate plan?
There is no single coverage amount that works for everyone. When considering an
amount of life insurance, factors may include the expenses or financial obligations
you want the death benefit to help address and the resources already available.
- Outstanding financial obligations: debts, housing expenses, and other costs beneficiaries may need to manage
- Ongoing financial support: money a spouse, family member, or another person may continue to need
- Final expenses: funeral and related costs you want to plan for
- Legacy goals: additional money you would like beneficiaries to receive
- Existing resources: savings, current life insurance, and other assets already available
The difference between the financial needs you want to address and the resources already available can provide a starting point for reviewing a coverage amount. It is not a universal formula, and individual circumstances may change the result.
Why are beneficiary designations important?
A beneficiary designation identifies the person, people, organization, or estate
named to receive the policy benefit. That makes beneficiary information an important
part of reviewing life insurance alongside an estate plan.
Reviewing beneficiary information periodically, and after major life changes, can help confirm that it still reflects your current wishes.
Questions about how life insurance interacts with a will, probate, estate taxes, trusts, policy ownership, or other legal arrangements depend on individual circumstances and applicable law. An estate-planning attorney or qualified tax professional can explain how those rules may apply to you.
When should life insurance be reviewed as part of an estate plan?
Financial responsibilities, beneficiaries, and goals can change over time. A review
may be useful after events such as:
- Marriage or divorce
- A birth or adoption
- Retirement
- Buying or paying off a home
- A significant change in financial obligations or assets
- The death of a beneficiary
- A change in the amount or duration of protection needed
A review does not necessarily mean the coverage needs to change. It can simply help confirm that the coverage and beneficiary information still match your current needs and wishes.
Can AARP Term Life Insurance become Permanent coverage?
Eligible AARP Level Benefit Term Life Insurance certificate holders have a
Guaranteed Exchange Option that can allow Term coverage to be exchanged for
AARP Permanent Life Insurance. The exchange does not require health questions or
medical tests, and Permanent rates are based on age at the time of exchange.
Applicable policy terms and eligibility requirements apply.
Certificate holders should consider the differences in coverage duration, rates, and policy terms before making an exchange.
About the AARP Life Insurance Program from New York Life
The AARP Life Insurance Program is underwritten by New York Life Insurance
Company. Product availability, features, rates, and eligibility requirements vary by
policy and state.
Key takeaway
Life insurance can complement an estate plan when it addresses a financial need
that may remain after your death. It can provide money to beneficiaries for expenses,
ongoing support, financial obligations, or legacy goals.
The type, amount, and duration of coverage depend on your circumstances. Life insurance should be reviewed as one part of broader planning, with professional legal or tax guidance when questions involve wills, probate, trusts, ownership, or taxes.
Quick Answers
Should life insurance be part of an estate plan?
It may have a role when you want to provide money for beneficiaries after your
death. The decision depends on the financial need, resources already available, and
how long coverage is needed.
Is life insurance the same as an estate plan?
No. Life insurance can complement an estate plan, but it does not replace a will,
other legal documents, or professional estate-planning guidance.
Is term or permanent life insurance better for estate planning?
Neither is automatically better. Term coverage is designed for a defined period, while
permanent coverage can last for life if required premiums are paid and policy terms
are met.
Frequently asked questions
How much life insurance might I need for estate planning?
Factors that may be considered include financial needs the death benefit could help
address, such as final expenses, debts, ongoing support, and legacy goals, as well
as savings, current life insurance, and other resources already available.
Should I review my beneficiaries when I update my estate plan?
Reviewing both at the same time can help confirm that your beneficiary information
reflects your current wishes. A marriage, divorce, death, or other major life change
may also be a reason to review it.
When should I review life insurance as part of my estate plan?
A review may be useful after major life changes or when financial obligations, assets,
beneficiaries, or the amount and duration of protection needed have changed.
Can AARP Term Life Insurance be exchanged for Permanent Life Insurance?
Eligible AARP Level Benefit Term Life Insurance certificate holders can exchange
coverage for AARP Permanent Life Insurance without health questions or medical
tests. Permanent rates are based on age at exchange, and applicable policy terms
and eligibility requirements apply.
When should I seek professional estate-planning guidance?
Questions involving wills, probate, estate taxes, trusts, policy ownership, or other
legal arrangements depend on individual circumstances and applicable law. An
estate-planning attorney or qualified tax professional can explain how those rules
may apply.
This article is provided by New York Life Insurance Company for informational purposes only. This article is not intended to provide tax, legal, financial or accounting advice. Please consult your own professional for advice specific to your circumstances.
