Life Insurance for Estate Planning Calculator
Estimate Your Estate Tax Liability
Using Life Insurance for Estate Planning
Large estates can trigger significant federal and state estate taxes, forcing heirs to sell assets — including family businesses or real estate — to cover the tax bill. Life insurance provides an efficient, income-tax-free source of liquidity at death. The death benefit can pay estate taxes directly, preserving the estate's assets for your heirs. For maximum tax efficiency, the policy should be held in an Irrevocable Life Insurance Trust (ILIT) so the death benefit is excluded from your taxable estate. The 2026 federal exemption is $13.99 million per individual ($27.98 million per couple), though this may change with future legislation.
Frequently Asked Questions
What is the 2026 federal estate tax exemption?
The federal estate tax exemption for 2026 is approximately $13.99 million per individual. Estates below this threshold pay no federal estate tax. Married couples can combine exemptions for roughly $27.98 million.
What states have their own estate tax?
About 12 states and Washington D.C. impose their own estate or inheritance taxes, often with lower exemption thresholds than the federal limit. Check your state's specific rules.
How does an ILIT help with estate taxes?
An Irrevocable Life Insurance Trust owns the policy, keeping the death benefit out of your taxable estate. Without an ILIT, life insurance proceeds can increase the estate value and trigger additional taxes.
What type of life insurance works best for estate planning?
Survivorship (second-to-die) whole life or universal life policies are commonly used because they provide permanent coverage with lower premiums and pay out when estate taxes are most likely to be due.
Will the federal exemption change?
The current elevated exemption was set by the 2017 Tax Cuts and Jobs Act. Without congressional action, it is scheduled to revert to a lower inflation-adjusted amount after 2025. Estate plans should account for potential changes.
Disclaimer: Estimates are for educational purposes only and do not represent actual insurance quotes. Tax laws change frequently; consult a licensed estate attorney and financial advisor for personalized guidance.