Yes, if you own the policy at the time of your death or gave it away within three years of your death, or if you retained "incidents of ownership" such as the power to change the beneficiary. An irrevocable life insurance trust can remove the proceeds from your estate.
If your income is low enough, you may not owe any income tax, but self-employed persons must pay self-employment tax on all earned income. I agree that generally accountants charge less per hour and a good accountant should be able to help you get things straight.
The only way to make sure that it can be accomplished is to have your husband sign a valid postnuptial agreement waiving all of his rights to the property. Because of your marriage he has certain rights to the property upon your death regardless of what your will or trust provides.
Most, if not all states require two witnesses. Beneficiaries should not be witnesses or they will lose their right to receive anything under the will. I would encourage your father to see a lawyer to ensure that his will is properly prepared. Homemade wills are never a good thing.
You do not have the right to withdraw or use the funds for your children unless you are appointed by the court as guardian , and then court approval is required for certain expenditures. I recommend that you hire an attorney to assist you with the process.
You should have your son and his wife sign a promissory note and deed of trust/mortgage that will allow your "loan" to be secured by the house. You will need a PA attorney to prepare these documents for you.