While life insurance can be used to fund a short-term estate need, such as paying off an outstanding mortgage or protecting the estate against an immediate shortfall.

Examples include having a life insurance policy that would cover estate taxes on death (capital gains generated due to the deemed disposition rules) or the ability to leave bequests without the advent of taxes payable.

As with all insurance products that are used for estate planning purposes, a thorough cost-benefit analysis should be performed in order to assess the appropriateness of the strategy.

Life insurance plays a vital role in estate planning, including preserving the value of your estate, providing financially for dependents or a surviving spouse, and ensuring money is available to pay for any taxes, fees, or other outstanding debts upon death.

Any estate — large or small — will require money to pay taxes, administration expenses, and outstanding debts. Estate liquidity is also very important for providing living expenses to a surviving partner, spouse or dependent children.

Life insurance can not only be used to protect surviving dependents, but also to create, increase or preserve funds to ensure the fair and equitable distribution of your estate. One of the greatest benefits of life insurance is that it provides tax-free money to your beneficiary.