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A Guide To Life Insurance Planning

By Joshua Berkley

Life insurance planning is crucial for securing your financial future and providing peace of mind for your loved ones. Whether you are considering the purchase of your first policy and want to incorporate estate planning in that as well or looking to simply change your coverage, understanding some estate considerations and tax concepts related to life insurance is helpful when conducting your planning.

Life insurance planning is an essential aspect of financial and estate planning, providing a means to protect your family’s financial future in the event of your untimely death. In Kentucky, as in other states, there are specific legal considerations incorporating life insurance coverage as part of your estate planning. 

Considerations In Connection With Your Life Insurance Planning

  • Choosing the Right Type of Policy: There are two central life insurance policies: term and whole life insurance. Term life insurance covers a specific period, while whole life insurance offers coverage for the insured’s entire life, often with a cash value component. The choice between these types depends on your financial goals, the needs of your dependents, and your long-term planning strategies.
  • Beneficiary Designations: One of the most critical aspects of life insurance planning is the designation of beneficiaries. Policyholders must carefully consider who they name as beneficiaries, as this decision directly affects who will receive the policy’s proceeds upon their death. It is also essential to regularly review and possibly update beneficiary designations to reflect changes in life circumstances such as marriage, divorce, the birth of children, or the death of a previously named beneficiary.
  • Ownership and the Policy’s Impact on Estate Taxes: The owner of a life insurance policy controls the policy and is responsible for paying the premiums. Ownership can affect the inclusion of the policy proceeds in the policyholder’s estate for estate tax purposes. In some cases, transferring ownership of the policy to another person or a trust can be a strategic move to minimize estate taxes. However, this comes with legal and tax implications.
  • Life Insurance Trusts: Creating an irrevocable life insurance trust (ILIT) can be a beneficial strategy for estate planning. An ILIT can own the life insurance policy on your life, removing it from your estate and potentially reducing estate taxes. However, an ILIT cannot be amended once established, and the grantor gives up control over the policy. As a result, you will need to do careful planning and obtain legal guidance to ensure it aligns with your overall estate plan.
  • State-Specific Regulations and Protections:  Kentucky has specific rules and regulations governing life insurance policies and practices. These rules are designed to protect policyholders and beneficiaries, ensuring fair practices in issuing, managing, and paying life insurance benefits. Some of the areas regulated by Kentucky laws include:
    1. Application Process: Regulations exist concerning the information that applicants must provide and the disclosures insurers must make to applicants.
    2. Grace Periods: Kentucky law typically requires a grace period on life insurance payments, during which a policy remains in force even if a premium is late. This period allows policyholders a window of time to make their payments without losing coverage.
    3. Incontestability: Some laws limit the time frame within which an insurer can contest a life insurance policy’s validity based on misstatements in the application, often after the policy has been in effect for two years.
    4. Policy Lapse and Reinstatement: Rules governing the conditions under which a policy might lapse for non-payment of premiums and the process for reinstating a policy.
    5. Consumer Protections: Various protections are in place to guard against unfair or deceptive practices, including regulations on advertising, the sale of policies, and the handling of personal and medical information.
    6. Guaranty Association: Kentucky is part of the state guaranty association system, which provides a safety net for policyholders if an insurance company becomes insolvent. This association ensures that the state pays claims up to a specific limit in the event of an insurer’s insolvency.

For the most current and detailed information on life insurance regulations in Kentucky, it is advisable to consult the Kentucky Department of Insurance or an attorney experienced in insurance law and estate planning law. These sources can provide up-to-date information on rules and regulations and guidance on consumer rights and protections.

 Consulting with Legal and Tax Professionals

Given the complexities involved in life insurance planning, especially when considering the legal and tax implications, consulting with legal and financial professionals is highly advisable. From a tax perspective, the payout from a term, whole, or universal life insurance policy is not considered part of the beneficiary’s gross income. The proceeds paid to the beneficiary in a lump sum are generally not subject to income or estate taxes. 


Life insurance planning is a complex process that requires careful consideration of your financial goals, family needs, and the legal landscape. By considering the above factors and seeking professional advice, you can ensure that your life insurance planning effectively supports your estate planning objectives. Berkley Oliver has experienced estate planning attorneys who can provide guidance tailored to your situation, confirming that your life insurance planning aligns with your overall estate planning goals and complies with Kentucky law. Contact our office for an initial consultation.

About the Author
Josh Berkley is an attorney and owner at Berkley Oliver PLLC who helps individuals implement plans to protect their assets and their loved ones. Josh focuses his practice in the areas of Estate Planning, Probate, and Elder Law.  From assisting young parents in making a plan to provide for their children, to helping senior clients qualify for Medicaid, Josh works with clients to create estate plans and life plans tailored to each person’s specific goals. He also helps clients with a wide variety of important legal documents such Wills, Trusts, Powers of Attorney, Healthcare Surrogate Designations, and Living Wills. If you have any questions regarding this article, contact Josh here.