The recent overhaul of the tax code has many repercussions—not the least of which may be the doubling of estate-tax exemptions and its effect on life insurance.

The estate tax is levied on wealth transferred through inheritance. Before the tax overhaul, estates worth less than $5.5 million were exempt from that tax. Now, however, the exemption is $11 million for individuals and $22 million for couples.

This increase has led some advisors to tell their clients to consider giving up their permanent life insurance policies. They may no longer need them, the reasoning goes, to aid their heirs in paying the federal estate tax.

But other advisors say not so fast.

"First, some states still have estate taxes," said Herbert K. Daroff, an attorney and financial planner at Baystate Financial Planning in Boston. "Second, the largest tax bill that most heirs will pay is the federal and state income tax on retirement accounts," not the estate tax.

Furthermore, the doubling of the exemption isn't permanent, noted Martin M. Shenkman, an estate planning attorney and founder of Shenkman Law in Fort Lee, N.J.

Indeed, the exemption will be reduced by half in 2025. Even before then, a new presidential administration or Congress could well make other adjustments. "So think carefully before making a change," he advised. “All policies should be reviewed and evaluated for current benefits. In many cases, existing policies can be repurposed to meet needs other than just paying estate tax."

One of those potential other needs is liquidity, he said. Even if a client isn't concerned about the estate tax, many life insurance policies can provide cash to beneficiaries more readily than other types of assets. "Clients owning real estate or business interests or art still need life insurance for liquidity," Shenkman elaborated.

Life insurance can also "equalize estate distributions," he said. That's especially important if heirs don't want to share their inheritances—if there are children from a previous marriage, say, or if the heirs simply have different interests. For example, the child who is involved in the family business can inherit the business while the other who is not can receive an equivalent amount of cash from insurance. "The uses are almost endless," said Shenkman.

In any case, clients can cash in on life policies without getting rid of them. Whole life policies are mostly paid for up front, but clients can still cash in. "They can borrow against the cash value, typically accessing 80% to 90% of the cash value," said Daroff. He noted, though, that, "Upon surrender, they may have an ordinary income tax gain, if the cash value is greater than the premiums paid."

What's more, death benefits can sometimes be tapped early. "Many policies can be issued today with a rider allowing you to access up to 90% of the death benefit during your lifetime" for qualified long-term care expenses, for instance, said Daroff.

He also pointed out that a life insurance death benefit "can be used to fund a Roth conversion at the death of a spouse," or by anyone who has advance warning of their death. "During your lifetime, the cash value operates like a Roth."

Life insurance may be a poor substitute for equities, but when compared to cash or fixed-income assets it can be a good alternative. "Banks pay very little interest on cash, and the interest is currently taxable," noted Daroff. "But insurance companies pay much higher interest on cash value, and it is tax-deferred or tax-free.”

Some wealthy clients who live in high-tax states might even find that the tax overhaul enhances a permanent life insurance policy's tax-deferral feature.

Still, for clients who opt to jettison their life insurance policies, there are several options. One is to sell the policy to a third party in a "life settlement," in which the owner typically receives more than the policy's cash surrender value but less than its face value or death benefit.

Alternatively, clients could do a 1035 tax-free exchange to another insurance policy or annuity, "if the cash value is greater than the premiums paid," said Daroff.