Typically the way life insurance works is as follows. A man or woman busy a policy in his/her name. Premiums are paid each month or quarterly as agreed and the company promises to pay to the beneficiary of the man/woman (as designated by him/her) and amount for a specific sum should the policy owner have an untimely demise. In the case of a payout, the beneficiary would receive the funds tax free, but the estate of the owner would have to declare the entire amount of the policy proceeds as an asset. If this individual had enough assets to surpass the minimum estate tax amount, he/she would then owe taxes (or his/her estate would). One way around this is to look into an irrevocable life insurance trust. This is a trust which is created to own the policy on the man/woman’s life (as opposed to that individual retaining the ownership interest). This would effectively remove the asset from that individuals taxable estate upon his/her untimely demise and thus allows one to increase the amount of wealth that may pass tax free and allows for one to plan to minimize/remove tax liability if one was in a situation where they were exceeding the estate tax minimum. This should not be construed as advice nor a recommendation of any kind, but is solely for informational purposes. There are very specific requirements under state law for these types of things and if interested it is recommended you consult with both legal and financial counsel.