Estate planning is not something your clients can do once and then forget about. Shifting tax laws, changing client health and new family goals make regular reviews and revisions of existing plans a necessity.
For example, many life insurance policies were bought decades ago when estate tax rules were very different. Today, those same policies may no longer serve their purpose — they can even be more of a burden than a benefit to seniors living on fixed retirement incomes.
In these and other cases, life settlements can be a flexible solution providing seniors with funds for today’s priorities, eliminating ongoing policy costs and aligning their estate plan to their current needs.
But are life settlements a good fit for your clients? When does it make more sense to sell a policy? How much can your clients get by selling?
Below, we answer these questions and more to help you better advise clients on their life insurance and estate planning needs.
THE TRADITIONAL ROLE OF LIFE INSURANCE IN ESTATE PLANNING
People have long used life insurance in estate planning for reasons like wealth transfer, quick cash and balancing inheritances. Let’s take a closer look at these uses and why some may no longer apply.
Estate Tax Coverage
Estate tax exemptions used to be as low as $600,000 in the 1980s, causing many families to owe estate taxes after loved ones passed on. A life insurance policy, such as a traditional whole life or joint survivorship policy, was a way to help the surviving family cover those taxes without having to sell assets like real estate or businesses at fire-sale prices.
Wealth Transfer and Legacy Planning
Life insurance is often used to equalize inheritances among children, make charitable gifts or fund education or special-needs trusts for dependents.
Trust Funding
Life insurance policies are sometimes placed into irrevocable life insurance trusts (ILITs) to prevent the death benefit from being included in the taxable estate. This also has the advantage of providing trustees with immediate liquidity to meet new financial obligations arising from the passing of a loved one.
Business Succession
Some individuals purchase life insurance policies as a business strategy when they have family members as partners. Surviving partners can use the death benefit payout to buy out the deceased partner’s share. This helps keep the family business together, rather than splitting its ownership with multiple heirs.
3 SCENARIOS WHERE POLICIES MAY NO LONGER SERVE THEIR PURPOSE
New tax laws and changing family dynamics are just a couple of reasons why seniors are reconsidering the need for life insurance. Let’s look at these and other scenarios that may make life insurance policies an obsolete estate planning strategy for some clients.
Changing Estate Tax Thresholds
The One Big Beautiful Bill (OBBB), signed into law in July 2025, raises the federal estate tax exemption limit to $15 million in 2026. Afterward, the limit adjusts yearly for inflation. For many people, rising estate tax thresholds make life insurance unnecessary because fewer families will owe estate taxes after loved ones pass.
Shifts in Family Needs
Many seniors find that their families no longer need a large life insurance payout, as the kids are grown and financially independent. Family changes, such as divorce, remarriage or the formation of blended families, can also render the original beneficiary plan outdated.
Trust and Estate Restructuring
When an ILIT is dissolved, merged or no longer needed, any life insurance policies within it can be left without a clear role in the estate plan. This is where trust restructuring and life insurance often cross paths. In these situations, restructuring the trust and selling the policy can stop premium payments and provide access to some of the policy’s value.
LIFE SETTLEMENTS: AN ESTATE PLANNING ALTERNATIVE
Life settlements in estate planning allow clients to sell policies they don’t need and use the money for current priorities. The benefits for clients are numerous:
- Liquidity: Selling life insurance for liquidity turns what would otherwise be a non-liquid asset into immediate cash. It also allows seniors to cover financial needs without draining retirement accounts.
- Higher value: Life settlement payouts can be four to seven times higher than a policy’s surrender value.
- Premium relief: Life settlements stop ongoing premium payments for insureds and can ease cash-flow strains for those on fixed incomes.
- Flexibility: Clients can redirect money toward healthcare, retirement living, charitable giving, family gifts and other priorities.
BEST PRACTICES FOR ADVISORS
Regular life insurance policy reviews against estate plans can help reveal when a policy no longer serves its original purpose. When it doesn’t, advisors may want to consider showing clients how selling a policy through a life settlement can be several times more lucrative than surrendering, canceling or letting a policy lapse.
Framing life settlements as part of clients’ estate planning alternatives ensures they understand the full range of choices. By clearly outlining these paths, advisors fulfill their fiduciary duty and strengthen client trust.
You can help your client get the best value from a life settlement by partnering with licensed life settlement brokers. These brokers can ensure your client gets multiple competitive bids. Consider consulting with CPAs and estate attorneys to understand the tax implications of settlement proceeds for your client.
EVOLVING ESTATE PLANS REQUIRE FLEXIBLE TOOLS
Life insurance remains a vital component of estate planning for many individuals. Still, many seniors find their polices have outlived their original purpose. Life settlements are a way to get back some of the policy’s value while also freeing up cash for other uses.
Helping clients decide when to sell a life insurance policy as an estate planning strategy allows advisors to strengthen trust and show fiduciary diligence.
If your client’s estate plan has shifted, don’t let their policy lapse without knowing its true value. Speak with a life settlement advisor today to see if your client’s policy qualifies or if you’d like to learn more.
