Don Lilly III, Life Insurance Broker

Answer: An Irrevocable Life Insurance Trust (ILIT) is a legal trust created to own a life insurance policy. Because the trust—not the individual—owns the policy, the death benefit is generally kept out of the insured’s taxable estate, which can help reduce potential estate taxes for larger estates.

Here’s how it works:

• An attorney creates the ILIT, and once it’s established, it generally cannot be changed or revoked.

• The trust purchases a new life insurance policy (or, in some cases, an existing policy is transferred into the trust, although the IRS three-year rule may apply).

• The grantor makes gifts to the trust to pay the insurance premiums.

• Upon the insured’s death, the insurance proceeds are paid directly to the trust.

• The trustee distributes the funds according to the instructions in the trust document, helping provide liquidity for heirs, protect assets, and potentially avoid probate.

An ILIT can be a valuable planning tool for business owners, individuals with larger estates, blended families, or anyone looking to control how life insurance proceeds are distributed. However, because trust and tax laws are complex, it’s important to work with an experienced estate planning attorney, tax professional, and financial advisor to determine whether an ILIT is appropriate for your situation.

If you’d like to discuss how life insurance fits into your estate or retirement plan, I’m happy to help.

Don Lilly III, MBA, LUTCF, LACP

Financial Advisor & Insurance Professional

Answer: One of the biggest mistakes people make when buying life insurance is waiting too long.

Many people assume they’ll get around to it later, but life insurance generally costs less when you’re younger and healthier. A change in your health can increase premiums significantly—or even make coverage unavailable.

Other common mistakes include:

* Choosing coverage based only on price instead of making sure it will meet your family’s financial needs.

* Buying too little coverage, leaving loved ones without enough to replace income, pay off debts, or cover future expenses like college.

* Relying solely on employer-provided life insurance, which is often limited and may not follow you if you leave your job.

* Not reviewing your policy after major life events such as marriage, having children, purchasing a home, or starting a business.

* Skipping a needs analysis. The right policy depends on your goals, budget, family situation, and long-term financial plan—not just your age.

The best life insurance policy isn’t necessarily the cheapest—it’s the one that provides the right protection for the people who depend on you. Taking the time to evaluate your options today can provide financial security and peace of mind for years to come.

Answer: If you don't name a beneficiary on your life insurance policy, the death benefit will typically be paid according to the policy's provisions. In many cases, it goes to your estate, which may require probate and can delay the distribution of the funds. Keeping your beneficiary designations up to date is one of the simplest ways to help ensure the proceeds are paid according to your wishes.

Answer: Yes, in many cases you can still qualify for life insurance after having cancer. Eligibility depends on factors such as the type of cancer, how long you've been cancer-free, your treatment history, and your overall health. Since underwriting guidelines vary from one insurance company to another, it's often possible to find coverage even if one carrier declines your application.

Answer: Joint life insurance covers two people under one policy, but there are different types. A first-to-die joint policy pays the death benefit when the first insured person passes away, while a survivorship (second-to-die) policy pays the benefit only after both insured individuals have passed away. Survivorship policies are commonly used in estate planning because they help provide funds for heirs or to address potential estate tax obligations.

Answer: Life insurance can be especially important for self-employed individuals and small business owners because it helps protect both their family and their business. Depending on their needs, a policy can provide income replacement, help pay off business debts, fund a buy-sell agreement between business partners, or provide financial stability while the business transitions after the owner's death. The right type and amount of coverage will depend on the owner's personal and business goals.

Answer: Most life insurance policies pay the death benefit as a tax-free lump sum to the beneficiary, which is the option most people choose. However, some policies also allow other payout options, such as installment payments over time or leaving the proceeds with the insurance company to earn interest. The available options depend on the policy and the insurance carrier.

Answer: Final expense insurance is a type of whole life insurance designed to help cover end-of-life expenses such as funeral costs, medical bills, or other outstanding debts. It typically offers smaller coverage amounts and has a simpler underwriting process than many traditional life insurance policies. While regular life insurance is often purchased to replace income or provide long-term financial protection for a family, final expense insurance is primarily intended to help ease the financial burden on loved ones after someone passes away.

Answer: The DIME method is a simple way to estimate how much life insurance someone may need. DIME stands for Debt, Income, Mortgage, and Education. The idea is to add up outstanding debts, the amount of income your family would need to replace, any remaining mortgage balance, and future education costs for your children. While it's a helpful starting point, it's also important to consider other factors such as savings, existing insurance, retirement assets, and your family's long-term financial goals.

Answer: Life insurance companies look at several factors when determining your premium, including your age, overall health, medical history, tobacco or nicotine use, family health history, occupation, hobbies, and the amount and type of coverage you're applying for. The lower the insurer believes your risk is, the lower your premium is likely to be. Because underwriting guidelines vary by company, it's often worth comparing multiple carriers to find the best value.

Answer: Life insurance can play an important role in helping provide long-term financial security for a family with a special needs child. The death benefit can help fund ongoing care, living expenses, and future financial needs, and in many cases it may be coordinated with a properly structured special needs trust to help preserve eligibility for certain government benefits. Because every family's situation is different, it's important to work with both a financial professional and an attorney familiar with special needs planning.

Answer: The life insurance medical exam is usually a quick exam completed by a licensed examiner at your home or workplace. It typically includes basic measurements such as your height, weight, blood pressure, and a blood and urine sample. The insurance company uses the results, along with your medical history and lifestyle information, to evaluate your overall health and determine your underwriting classification and premium.

Answer: There isn't a one-size-fits-all amount of life insurance because every family's financial situation is different. A good starting point is to consider factors such as income replacement, outstanding debts, mortgage balance, future education costs, and long-term financial goals. Rather than relying on an average, it's better to calculate the amount that would allow your family to maintain financial stability if something happened to you.

Answer: A beneficiary is the person or entity who is first in line to receive the life insurance death benefit when the insured passes away. A contingent beneficiary is the backup recipient who would receive the proceeds only if the primary beneficiary has already passed away or is otherwise unable to receive the benefit. Naming both can help ensure the proceeds are distributed according to your wishes.