A major change to the federal estate tax exemption is creating a new planning conversation for financial advisors and their high-net-worth clients.
Beginning in 2026, the federal estate and gift tax basic exclusion amount increased to $15 million per individual, up from $13.99 million in 2025. For married couples, careful planning may allow up to $30 million of combined exemption.
For some clients, that change could significantly reduce potential federal estate tax exposure.
It also raises an important question:
If a life insurance policy was originally purchased to help cover estate taxes, does the client still need the same coverage today?
At Abacus Life Solutions, we believe changes like these are an important reminder that life insurance should be reviewed whenever a client’s broader financial or estate plan changes.
Why Life Insurance Has Played a Role in Estate Planning
Life insurance has long been an important tool for high-net-worth families.
In addition to supporting legacy and wealth transfer goals, policies can provide liquidity to help beneficiaries address expenses following a death, including potential estate taxes.
For clients with substantial illiquid assets, life insurance can help prevent heirs from having to quickly sell businesses, real estate, or investments to generate cash.
But when tax laws change, the assumptions behind an estate plan can change too.
A $15 Million Exemption Changes the Conversation
The federal basic exclusion amount increased from $13.99 million in 2025 to $15 million in 2026.
For some high-net-worth clients, particularly those whose estates fall below the new threshold, potential federal estate tax exposure may look very different than it did when their life insurance strategy was originally created.
That does not mean the policy is no longer valuable or necessary.
It means the policy deserves another look.
Advisors should consider asking:
- Why was the policy originally purchased?
- Does that need still exist?
- How has the client’s estate changed?
- Are there state estate or inheritance taxes to consider?
- Does the death benefit still support legacy or business planning goals?
- Are ongoing premiums still justified?
The answers may confirm that keeping the policy is the right strategy. In other situations, they may reveal an opportunity to reposition the asset.
What Happens When the Original Need Changes?
Imagine a client purchased a large life insurance policy years ago primarily to provide liquidity for anticipated federal estate taxes.
Since then, tax laws have changed, the client’s estate plan has evolved, and their expected federal estate tax exposure has decreased.
Meanwhile, the client continues paying substantial premiums to maintain the coverage.
Traditionally, the options might have been to keep the policy, surrender it, or allow it to lapse.
A life settlement introduces another possibility.
For an eligible client, selling the policy may provide a cash payment greater than its surrender value while also eliminating future premium obligations.
Turning an Estate Planning Asset Into Today’s Liquidity
If coverage is no longer necessary, a life settlement can allow clients to reposition value from a policy toward other financial priorities.
Proceeds could potentially be used to:
- Supplement retirement income
- Reinvest in other assets
- Support family members today
- Fund charitable goals
- Cover healthcare or long-term care expenses
- Increase overall financial flexibility
The goal is not simply to sell an old policy. It is to determine whether that asset is still serving its highest and best purpose within the client’s current financial plan.
Tax Changes Should Trigger Policy Reviews
Estate plans are not meant to remain static.
When tax laws, family circumstances, business interests, or financial goals change, advisors routinely revisit trusts, gifting strategies, and other planning decisions.
Life insurance should be part of that review.
A policy that was perfectly suited to a client’s estate plan ten years ago may still be exactly right today.
Or it may not.
The only way to know is to evaluate it.
A New Estate Tax Landscape Creates a New Planning Opportunity
The $15 million federal estate tax exemption gives advisors another reason to revisit life insurance with high-net-worth clients.
For some, the new exemption will not change the need for coverage. For others, it may significantly change the role life insurance plays in their estate plan.
Either way, the conversation is worth having.
If the reason for owning the policy has changed, it may be time to determine whether the policy should change too.
Discover What Your Clients’ Policies Could Be Worth
If a client’s estate plan has changed and an existing life insurance policy may no longer serve its original purpose, consider evaluating all available options before surrendering or lapsing the coverage.
