Life insurance planning is an essential component of the estate planning process for wealthy individuals. For individuals of modest wealth, life insurance coverage often represents the most significant asset left to beloved heirs. Because of the relative importance of life insurance in an individual�s estate plan, it is critical that life insurance planning be performed appropriately.

In this chapter, we first discussed the income tax treatment of life insurance products. Our discussion now focuses on the uses of life insurance for transfer tax planning purposes. First, we will provide a brief overview of the transfer tax system. Second, we will explain the general transfer tax treatment of life insurance products. This includes the federal transfer taxes and death taxes imposed by the various states. Third, we will discuss the basic purposes of life insurance in the individual�s estate plan. Finally, we will review some practical planning applications for life insurance in the estate planning process.