Why Everyone Needs Life Insurance
April 23, 2021
Why Do I Need Life Insurance?
Most people benefit from having life insurance. It is just a question of what type of life insurance best fits your needs and circumstances. Having life insurance can give you peace of mind that if something were to happen to you, your family would be able to pay the mortgage, college expenses, and other large expenses while maintaining the same standard of living. Insurance is not a betting game. Chances are that you should have life insurance, but insurance consumers frequently feel pressure to buy more than they need.
How Much Life Insurance Do I Really Need?
Perhaps the soundest approach to purchasing life insurance is to consider personal needs. There are three basic uses for life insurance.
Income Replacement
Life insurance can replace lost income for someone who dies unexpectedly. For example, what funds will be available to the surviving family members to pay everyday bills? In determining the amount of life insurance necessary for income replacement, consider the following needs:
- a transition fund to pay at least six months' of bills during the grieving period
- an emergency fund for a catastrophic illness or injury, sudden and unexpected accident or casualty, financial collapse, or the like
- funds to pay off mortgages and other debts
- funds to supplement or replace Social Security
If you have young children, also consider an amount sufficient for child-rearing, college and postgraduate expenses, career help, and even the cost of marriages.
Planning Tip: Consider life insurance to replace income from the premature death of a breadwinner spouse or parent. The amount of insurance necessary should take into consideration not only monthly living expenses, but also transition and emergency funds, plus child-related expenses.
Wealth Replacement
Traditionally, the primary wealth replacement use of life insurance was to replace wealth lost to the federal estate tax. However, in recent years, the federal estate tax exemption has been historically high, increasing from $2 million (2006-2008) to $3.5 million (2009) to $5 million (2010), and finally to $11.7 million (2021) per individual. As a result, increasingly fewer estates are subject to federal estate tax, and thus fewer individuals need life insurance solely for traditional wealth replacement.
But life insurance also satisfies other wealth replacement needs. For example, many of the most significant assets people have are tax-qualified retirement plans (such as IRAs, 401(k)s, and pension plans). Because these are a special class of assets, they are subject to ordinary income tax when distributed to beneficiaries. Given the statistics that beneficiaries often deplete these assets quickly, they will incur significant income tax in withdrawing these assets. Therefore, a $1 million IRA may be worth only $650,000 after federal income tax, and less after state income tax. Realizing this, many of us would benefit from life insurance designed to replace this lost wealth, thereby enabling our families to receive the full value of our assets.
Life insurance also serves the following wealth replacement needs:
- funeral and other last expenses
- estate administration expenses, including medical bills, the decedent's debts, final individual income taxes, fiduciary income taxes, fiduciary commissions, attorney's fees, accountant's fees, appraiser's fees, and probate costs
Wealth Creation
The third basic need for life insurance is the creation of wealth. An individual may wish to add to his or her wealth at death for future generations or to fund personal philanthropic objectives.
Other Uses for Life Insurance
Many individuals use life insurance as a funding mechanism in other situations such as the following:
- buy-sell planning for business owners
- key employee coverage
- nonqualified deferred compensation
- liquidity for state death taxes
- inheritance equalization (for example, where only one child works in the family business that will be transferred to the child through lifetime gifts or upon the death of a parent)
Planning Tip: Life insurance is often the only vehicle that ensures that you will have the necessary liquidity when needed.
Irrevocable Life Insurance Trusts
Life insurance proceeds are not subject to income tax. However, if the insured owns the insurance policy, these proceeds will be included in the insured's gross estate and thus be subject to federal and/or state estate tax. One simple way to avoid this result is to use a properly drafted and maintained irrevocable life insurance trust (ILIT). An ILIT that owns the life insurance can avoid federal and state estate tax on the life insurance proceeds. Such a trust can also ensure that the life insurance proceeds are available as you intended.
Planning Tip: Use an ILIT to purchase, own, and be the beneficiary of life insurance. This planning strategy will ensure that the life insurance proceeds are not subject to estate tax.
Conclusion
Life insurance is a unique asset that can provide the highest degree of flexibility for changes in the law or changes in your circumstances. Consequently, the quality of the life insurance agent and the life insurance company you select are among the most important choices you can make. We recommend that this professional be part of your planning team to help ensure that your life insurance is an integral part of a comprehensive financial and estate plan.
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There's a phrase most of us remember from decades past: "Friends don't let friends drive drunk." It was simple, direct, and it worked, because it reframed a difficult conversation as an act of friendship, not judgment. The same logic applies to estate planning. For most of us, our friends are among the most important people in our lives. For some, they're chosen family: the people who show up, who know everything, who would be on the other end of that phone call if something went wrong. And yet we rarely think about what it means to love someone that much and say nothing while they go unprotected. Here's the truth: According to Caring.com's 2025 Wills and Estate Planning Study, only 24 percent of Americans have a will. That means roughly three out of four people don't even have the most basic estate planning document in place. So yes, statistically, someone you love is probably unprotected. And if something happens to them, the people they love most may be left scrambling to pick up the pieces. Courts may need to get involved. Family members may disagree. Assets can be delayed or frozen. And the people left behind may have to make decisions with no clear record of what your friend or loved one actually wanted. And you, watching from the outside, will find yourself thinking: I knew they didn't have a plan. I could have said something. That's a different kind of grief. Watching someone you love go through the hardest time of their life and knowing you had a chance to make it easier. When someone is on your heart and you know they need to plan, how do you bring it up in general conversation or over dinner without sounding morbid, preachy, or like you're bracing for someone to die soon? Why People Don't Plan (It's Not What You Think) Before you can have this conversation well, it helps to understand why so many smart, caring, responsible people still don't have an estate plan. It's not because they don't care about their families. They care deeply. It's because: They think it's only for the wealthy. (It isn't.) They assume they'll get to it "someday." (Someday has a habit of not arriving.) They find the topic uncomfortable to think about. Let alone discuss. They've never had a lawyer they actually trusted enough to call. That last one matters more than most people realize. Planning isn't just paperwork. It's one of the most personal conversations a person can have. It asks them to sit with the reality of their own death, the possibility of incapacity, the future of their children, and what they actually value when it comes down to it. That's not a conversation most people are willing to have with a stranger. But with someone they trust? It changes everything. And that's where you come in. You're not their lawyer. But you might be the person they trust enough to finally take this seriously. You might be the reason they make the call. The bottom line: Nobody is too young, too broke, or too busy to need a plan. They just haven't had someone they love tell them that yet. What Happens Without a Plan Grief is hard enough. But grief with no plan is something else entirely. If someone you love doesn't have a plan and something happens to them, here's what their family will actually face: Someone is sitting at the kitchen table at midnight, surrounded by file folders they've never opened, trying to figure out if there's a life insurance policy, and if there is, where it is. They're calling a number they found on an old bank statement, not sure if the account is even still open. They're texting a sibling: Do you know if he had a 401k somewhere? I can't find anything. They're doing all of this while their kids are asleep down the hall, and they haven't eaten since this morning, and they still have to call the school tomorrow to explain why the kids won't be in. None of it was written down. None of it was planned. And every hour they spend searching is an hour they're not just grieving. They're managing a crisis their person left them to figure out alone. Their person's estate goes through probate, a public court process that can drag on for months or years. The assets are frozen during that time. If they had minor children, a judge decides who raises those children based on state law, not what they actually wanted. And if they had not died but had become incapacitated from a stroke, an accident, or sudden illness, their family may have no legal authority to make medical or financial decisions without going to court first. None of this is hypothetical. And the hardest part? Almost all of it is completely preventable. The bottom line: The consequences of no plan fall on the people left behind. That's why this conversation is worth having. How to Bring It Up The hardest part is starting. But remember: the alternative is watching someone you love face the kitchen table at midnight. That's harder. Here are a few ways in: After a life event. When a friend gets married, has a baby, buys a house, or loses a parent, it's completely natural to say, "Hey, have you thought about getting your estate plan done? Now's a really good time." Life events are the most common reason people finally take action. Share your own experience. If you've done your plan, say so. "I finally did our estate plan and I can't believe how long I put it off. I feel so much better knowing it's done." Coming from someone they know and trust, that's an invitation, not a lecture. Lead with someone else's story. A news story, a family you've heard about, a situation where someone didn't have a plan and the people left behind paid the price. You don't have to make it personal. Sometimes someone else's story opens the door just as well. Ask the question they haven't asked themselves. "If something happened to you tomorrow, who would make decisions for you? Would everyone agree on what you'd want?" Most people have never sat with that question. It lands very differently than, "Have you done your estate plan?" Use the month. August is National Make a Will Month. That's a built-in, low-pressure reason to bring it up: "Hey, did you know August is National Make a Will Month? Have you guys ever done anything with that?" No one feels cornered by a month. The bottom line: You don't need a perfect script. You just need one honest question or one personal story to open the door. Referring a Friend Is an Act of Love The clients who refer friends are almost always the ones who've been through it themselves. They know what it felt like to finally have a plan in place, and they want that peace of mind for the people they love. For some of them, the person they're referring isn't just a friend. It's chosen family. The person who showed up when no one else did. The one who would be devastated, and completely unprepared, if something happened. When one of my clients refers a friend to me, they're not just passing along a name. They're giving someone they love access to a planning relationship, one where we can look at the people, assets, decisions, and details before the family is in crisis. Through a Life & Legacy Planning® process, I take time to build a clear picture of exactly where a family stands, what's at risk, and what needs to be in place. For families with minor children, that includes a Kids Protection Plan® naming the right people and making sure the legal authority is actually in place. It also includes powers of attorney, health care directives, an asset inventory, beneficiary review, and a clear record of who should make what decisions and when. That's not something you get from a document website. It happens in conversation, built over time, with someone who knows your family. And when something does happen, your family knows exactly who to call. The bottom line: When something happens, and someday something will, your friend's family will know exactly who to call. That's what you gave them when you made the referral. Pass It On Friends don't let friends drive drunk. And friends don't let friends go without an estate plan. That's not just a clever parallel. It's the heart of why this work matters. The people in your life who would drop everything for you deserve to have someone drop this in their inbox. If this brought someone to mind, send them this article or invite them to schedule a Life & Legacy Planning Session with me. You don't have to convince them. You only have to open the door. Someday, they will thank you for it. What You Can Do Right Now Three out of four people don't have a plan. If someone you love is in that group, the most caring thing you can do is help them take the first step. As a Personal Family Lawyer®, I help families build a Life & Legacy Plan that reflects who they are, what they have, and who they love. August Is National Make a Will Month If this article brought someone to mind, now is the right time. This month, I'm inviting new clients to schedule a complimentary 15-minute discovery call: a quick conversation to find out exactly where you stand and what needs to be in place. Not someday. This month. Forward this article, share the link, or book a call for someone you love. Either way, someone you love gets protected before it matters. Schedule a complimentary 15-minute discovery call here: calendar.trustamdlaw.com/widget/booking/JDAbqicl45eEE3dRRmpb This article is a service of AMD LAW, a Personal Family Lawyer Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life & Legacy PlanningⓇ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning Session. The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own, separate from this educational material. © 2026
Most business owners spend a lot of energy thinking about what they're building. Revenue, clients, team, growth. What most don't think about, at least not until something forces the conversation, is what happens to everything they've built if they die. And more specifically: what happens to the debt? If you've taken on a business loan, a line of credit, a commercial lease, or an SBA loan to grow your business, that money doesn't just disappear when you do. Understanding what happens to business debt at death isn't morbid. It's essential planning. And for most entrepreneurs, the answer is more complicated and more personal than they expect. This is one of the places I help business owners look before a crisis: not just what the entity says on paper, but what the loan documents, guarantees, insurance, and family realities actually create. First: It Depends on How Your Business Is Structured The most important factor is how your business is set up. Sole proprietorship: If you operate as a sole proprietor, there is no legal separation between you and your business. Your business debts are your personal debts. They go into your estate, and your estate is responsible for satisfying them before your heirs receive anything. LLC or corporation: In theory, these structures protect your personal assets from business liabilities. The business's debts belong to the business, not to you personally. When you die, those obligations don't automatically transfer to your family. But here's where it gets complicated. The bottom line: Business structure matters, but it doesn't tell the whole story. The type of debt you carry can override the protection your structure is supposed to provide. Personal Guarantees Change Everything Many business owners have signed personal guarantees on their business debt and forgotten, or never fully understood, what that means. A personal guarantee means that you, as an individual, have agreed to repay the loan if the business can't. It's standard for SBA loans. It's common for commercial real estate. It's frequent for business lines of credit, especially for newer or smaller businesses. When you die with personally guaranteed debt, that guarantee becomes a claim against your estate. Your heirs don't become personally responsible for the debt just because they are your heirs. But creditors can make claims against your estate, enforce collateral, or pursue anyone who co-signed the obligation. That debt may reduce or consume what your family inherits before they ever see it. The question to ask yourself today: Do I know which of my business debts I've personally guaranteed? If you're not sure, find out. It's one of the most important pieces of information you can have as you build your overall plan. The bottom line: A personal guarantee turns a business debt into a claim against your estate. If you've signed one, it needs to be in your plan. What Happens to the Business Itself? The debt question doesn't exist in isolation. When a business owner dies, the business doesn't automatically pause. Contracts still run. Employees still need to be paid. Clients still expect delivery. And someone needs to be in charge. Here's what that looks like in practice. A solo owner dies with a $150,000 business line of credit, a commercial lease, and a personal guarantee on equipment financing. The LLC may still owe the money, and the estate may also be exposed because of the guarantees. Meanwhile, the spouse is trying to figure out payroll, client obligations, bank access, and whether the business can even keep operating. Nobody planned for this moment. Nobody knows where the documents are. Nobody has the authority to act quickly. If you have a business partner, what happens is likely governed by your operating agreement, assuming you have one, and assuming it addresses this scenario. Many don't. If you're a solo owner, the business may fall into your estate and be subject to probate, which can freeze operations for months while the courts sort out who controls what. For a business with employees, active clients, or ongoing obligations, that delay can be devastating. If a business owner dies, the family needs someone who already knows the plan, where the documents are, who has authority, and what debt has to be addressed first. Without that, decisions get made by whoever happens to be there, under pressure, in grief. The bottom line: Without a succession plan, your business could be frozen in court while your family, your employees, and your clients wait. The Surviving Spouse Problem If your spouse co-signed on business debt, they may be liable after your death regardless of how the business is structured. This catches many families off guard. The exposure can take several forms: a co-signed credit line, a personally guaranteed SBA loan or lease, collateral tied to a family home or shared account, or in some states, community property rules that create exposure depending on when the debt was incurred. A surviving spouse may find themselves fielding creditor calls, managing an estate, and trying to keep a business running, all at once, while grieving. The bottom line: Don't assume your spouse is protected. Get clear on what they'd actually be facing before something happens. What a Real Plan Addresses The goal isn't to avoid debt. The goal is to make debt intentional, documented, insured where needed, and coordinated with your family plan. This is what I work through with business owner clients, mapped to the four areas of the LIFT - Legal, Insurance, Financial & Tax® framework that need to work together: Legal: entity structure, operating agreement, buy-sell agreement, succession authority, and a review of every loan document and guarantee so you know exactly what you've signed and what your estate would owe. Insurance: life insurance or key-person coverage structured to fund debt repayment, a buyout, or a business transition. The right amount, owned the right way, with the right beneficiary. Financial: a full debt inventory, cash flow review, collateral exposure, payroll and vendor obligations, and estate liquidity so your family isn't forced to sell the business under pressure. Tax: payroll tax, sales tax, income tax, and estate tax exposure where applicable. Business owners often have more tax complexity at death than they realize. Most business owners have a personal estate plan or a business plan. Very few have both, and fewer still have them designed to work in tandem. That's the gap I close as a LIFTed Advisors™ attorney. The bottom line: Your business and your personal estate can't be separated, so your plan can't treat them separately. The Real Risk Is Waiting The business owners who are most exposed aren't the ones who made bad decisions. They're the ones who never got around to making any decisions. The loan documents are signed, the business is running, and the planning just didn't happen yet. That's a risk you can close relatively quickly with the right advisor. The work you've done to build your business deserves a plan that makes sure it actually survives you. What You Can Do Right Now Your business debt doesn't have to become your family's problem. As a Personal Family Lawyer® firm and LIFTed Advisors attorney, I look at your full business and personal picture through the LIFT - Legal, Insurance, Financial & Tax® systems, identify where the gaps are, and map out what needs to happen and in what order. Schedule a complimentary, one-hour LIFT Business Breakthrough™ Session and let's find out what this means for your business: calendar.trustamdlaw.com/widget/booking/JDAbqicl45eEE3dRRmpb This article is a service of AMD LAW, a Personal Family Lawyer Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life & Legacy PlanningⓇ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning Session. The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own, separate from this educational material. © 2026