When one owns a life insurance policy on themselves, how is the insurance proceeds treated for estate purposes?

When an individual owns a life insurance policy on their own life, the full amount of the insurance proceeds is generally included in their gross estate when they pass away. This inclusion occurs regardless of the beneficiary named in the policy or whether the coverage was term or whole life insurance. The reason for this is that the policyholder has control over the policy and its benefits, meaning the proceeds are considered part of their overall financial assets.

This treatment stems from estate tax laws, which stipulate that any asset that the deceased had ownership or control over at the time of death should be included in the estate for tax purposes. Therefore, the total death benefit payable to the beneficiaries upon the insured’s death is part of the gross estate.

Understanding that only certain types of life insurance or specific scenarios might affect how proceeds are handled—such as policies not owned by the decedent or irrevocably assigned to another individual—also clarifies why ownership is critical for this inclusion. Hence, recognizing the treatment of life insurance proceeds is essential for effective estate planning and understanding potential estate tax implications.