The reason you want to remove life insurance (group term insurance and other life insurance) from your estate is to provide your heirs with as much money as possible. If your life insurance is part of your estate, it may cause your estate to pay tax. There are ways to prevent life insurance from being included in your estate.
You can assign (give away) your insurance to the people who will ultimately receive the proceeds of the policy. This may not be such a good idea if your beneficiary is your spouse (because any life insurance he or she did not spend before dying would be part of his or her estate). There is a better way to avoid tax.
If you have a large amount of insurance which causes your estate value to exceed the estate applicable exclusion amount, consider using a special trust called an "irrevocable life insurance trust." The trust can purchase a policy directly or you can transfer/assign an existing policy that you own. If the policy was purchased directly, or if it was transferred and you live for more than three years after the assignment, the proceeds paid at your death will go to the trust free of estate tax. If the policy was transferred and you die before the three-year period is over, the proceeds, while still going to the trust income tax free, will be included in your gross estate. Neither you nor your spouse should be the trustee of this trust, since you don't want it to be included in either of your estates. An attorney can help you prepare this document.
If you are transferring life insurance that has a cash surrender value (the amount that you can take out of your policy today—term life insurance does not have this cash value), you may have a gift tax to pay. There are ways to reduce or prevent gift tax, and your attorney or estate planning professional can explain these rules.
SUGGESTION: If you are considering buying insurance, set up a trust first. If the trust buys the insurance, then the three- year waiting period does not apply. This means the insurance is automatically excluded from your estate.
SUGGESTION: Review your estate plan if three years have passed since you transferred ownership of your life insurance. If your estate is less than the applicable exclusion amount, you may be able to revise your plan and give your spouse the entire estate without the complications of a credit shelter trust.