Life Insurance FundamentalsQuestion 138 of 716
What is the main estate planning advantage of an Irrevocable Life Insurance Trust (ILIT)?
a.It lets the insured take tax-free policy loans from the trust at any time
b.It eliminates the insurable interest requirement because the trust owns it
c.It keeps the policy's death benefit outside the insured's taxable estate
d.It allows the insured to serve as both owner and trustee of the policy
Explanation
An ILIT owns the policy in place of the insured, so when the insured dies the death benefit is paid to the trust and is excluded from the insured's taxable estate. The trust must be irrevocable, and existing policies transferred in are subject to a three-year look-back.
Law Reference: IRC §2042; estate planning principlesThis topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)