Term life insurance is a low priced life insurance policy which simply offers a pay out upon the holders death, with no cash build up. Many people opt for term life insurance because they only seek to be able to supply their families with money in the event they are no around.

But term life insurance can also be used for another important objective.

Estate planning is the process of setting up an estate so that when it passes on the next generation it does so in the most efficient manner.

Since the IRS will expect taxes on estates with a value of over a set amount, people seek ways to reduce or eliminate those taxes for their heirs.

While the actual owed taxes cannot be eliminated there are methods to help heirs pay those taxes without having to pull money out of their taxes.

One common method is for heirs to sell the assets of the estate to pay their taxes that are due.

But the pressure to do so might force the inheritors to sell off the assets at reduced prices since they are under pressure to come up with money to pay the taxes.

Another method is for the owner of the assets to purchase a term life insurance policy which will list the heirs as the beneficiaries.

Once he passes away the heirs can use the proceeds from the term life insurance policy to pay the taxes owed on the estate.

Since the proceeds of a life insurance policy is not taxed it is easy to calculate what the heirs will receive.

The next step would be to calculate what the owed taxes on the estate will be, and then purchase a term life insurance policy that has a large enough pay out to cover the taxes.