I suppose life insurance could be more cost-effective than a trust lawyer if the estate is small, like $100,000. Spending a few hundred dollars on a $250,000 life insurance policy will leave your beneficiaries with a much larger inheritance than spending $2500 on a trust. However, that can be risky if you don't know what you are doing or make a mistake. Even in that scenario, it still makes sense to do a simple trust for the $100,000 of other assets in addition to the life insurance. The savings in probate fees will more than pay for the legal fees and you'll save your beneficiaries some major hassles.

Life insurance is a good option for covering a large tax bill due upon death. A $1 million estate tax bill could be a huge cash burden on the beneficiaries if the estate's assets are illiquid. Selling real estate holdings on short notice just to pay a tax bill would be painful. Selling a portion or all of a family business probably isn't a great option either.

The estate could keep $1 million in cash-equivalents to cover the bill, but those types of investments provide awful returns. They often don't even keep up with inflation. Spending $500/year on extra life insurance is money well spent if it allows gainful investment of that $1 million. A mere 5% instead of 3% return on that $1 million, is a $20,000/year difference. A real 10%+ investment makes a $500 life insurance bill entirely insignificant.