Whole and universal life insurance policies are a mash-up between traditional term life insurance and an investment. That is to say, they offer the basic functionality you'd expect of a life insurance policy, but they also accrue cash value that can be used for a variety of purposes. One accountant is saying that people with old whole or universal life insurance policies shouldn't just let them lapse. They can convert the assets to valuable estate planning tools.

Someone might have taken such a policy out years ago with a plan in mind for the cash value that was building. If the need for the cash changes, individuals might left the policy lapse. Letting the policy lapse after years of paying into it creates waste. Instead, you might consider another plan for that asset.

An insurance policy delivers liquid assets to an estate upon the estate owner's death. Some estates are worth a lot, but they don't feature much in the way of cash. Instead, the estate could be heavy with property and bonds; if heirs themselves don't have ready cash, it can be difficult for them to handle estate matters that require money immediately.

Insurance policies have long been used to handle estate tax matters. While many people are protected from large federal and state estate taxes by thresholds for those taxes, heirs might still face income taxes related to 401(k) or individual retirement account disbursements.

Insurance policies–especially those with cash values–can be converted into gifts to charities during or after your life. You can also use the value in the policy as a gift to children or grandchildren; such a gift could help cover the down payment of a home or educational expenses.

Understanding how financial plans play a role in your estate is important when it comes to protecting heirs and beneficiaries. Whether you want to provide for those heirs or simply keep them from the burdens of estate expenses, life insurance might be a handy tool.

Source: Florida Weekly, “Overlooked life insurance policies may still be a significant asset for giving,” Evan Williams, Nov. 26, 2015