When a Whole Life Insurance Policy Makes Sense

Whole life insurance is widely discussed and often misunderstood. Its value depends less on the product itself and more on how and why it is used. There is one setting where whole life insurance can serve a clear and practical role in wealth planning: when the policy is owned by an Irrevocable Life Insurance Trust or ILIT as part of a broader estate plan.

How Whole Life Insurance Works

A whole life insurance policy is a permanent life insurance contract that remains in force for the insured’s lifetime as long as premiums are paid. Each premium payment is allocated to three primary components.

First, a portion covers the cost of insurance. Second, a portion goes toward policy expenses. Third, the remaining amount contributes to the policy’s cash value.

The cash value grows over time on a tax deferred basis according to the policy’s terms. The policy owner may be able to access this cash value through withdrawals or policy loans, subject to the policy provisions and potential tax consequences. Upon the insured’s death, the beneficiaries receive the death benefit, generally income tax free.

The Estate Planning Role of Whole Life Insurance

For families with significant estates, estate taxes and liquidity needs at death can present challenges. Assets such as real estate, businesses, and long term investments may be valuable but illiquid.

When whole life insurance is owned by an ILIT rather than by the individual, the death benefit may be excluded from the taxable estate. The trust can then use the proceeds to provide liquidity for estate taxes or other obligations, helping preserve long term family assets and create more predictable wealth transfer outcomes.

Why the ILIT Structure Matters

Inside an ILIT, whole life insurance supports specific estate planning goals such as tax efficiency, liquidity, and control over how assets pass to future generations. The effectiveness of the strategy depends on proper design and ongoing administration.

Outside of this structure, the policy often does not align as well with broader wealth planning objectives for many families.

Our Role and Commitment to Objectivity

We do not sell insurance products and do not receive compensation from insurance providers. Our role is to help families evaluate whether insurance based strategies fit their overall financial, tax, and estate planning goals. When appropriate, we coordinate with independent professionals to implement solutions objectively.

Final Thoughts

Whole life insurance can play a valuable role when used intentionally within a properly structured estate plan. When combined with an ILIT, it can help address estate liquidity needs, improve tax efficiency, and provide greater certainty around long term wealth transfer.

The strength of the strategy lies in thoughtful planning and proper implementation, not simply in the insurance product itself.