In the United States, life insurance is often referred to as possibly the only means of creating an immediate estate because any other inheritance requires time, lawyers, and money to process. In essence, the transfer of assets typically involves wills, property transfers, and, if these assets are not placed in trust, the cumbersome process of probate. However, regardless of whether the policyholder has established a living trust, life insurance death benefits are paid directly to the beneficiaries, bypassing probate.
Life insurance payouts not only circumvent the probate process but also exempt beneficiaries from income taxes and protect them from the policyholder’s debts. Simply put, even when other assets are subject to disputes, the policyholder can clearly and definitively allocate the benefits to their descendants without any impact from debts, by specifying the beneficiaries and their respective shares within the life insurance policy. This nature of immediate estate is why many companies purchase substantial life insurance policies for key individuals (Key Persons). In the event of the key person’s death, a large payout can temporarily alleviate the operational challenges faced by the company.
Some may argue that purchasing life insurance means having money only after death and they don’t want to leave too much money to their children. However, let’s delve into the second layer of value of this immediate estate—the benefit during one’s lifetime, an insurance policy that can be utilized while alive.