Creating And Protecting Your Legacy

Does your life insurance need to go in your estate plan?

On Behalf of | Feb 6, 2024 | Estate Planning |

When you’re creating an estate plan, you typically want to mention all of your major assets. High-value assets often lead to disputes, so you need to make a plan for things like the family home, a small business, your investment portfolio, bank accounts and much more.

Many people aren’t sure whether or how to address a life insurance policy in their estate plan. They don’t actually possess this financial asset, even though they are the policyholder, because it doesn’t pay out until they pass away. Do you need to put your life insurance policy into your estate plan?

Setting a beneficiary designation

Most of the time, you do not have to add your life insurance to your estate plan. It is an unnecessary step. Instead, you just designate a beneficiary when you purchase the policy. When you pass away, the life insurance company directly pays your beneficiary, and no other steps are needed.

In fact, if your estate plan is in conflict with your beneficiary designation, that designation is going to take precedence. For example, perhaps you only named your eldest child as the beneficiary originally. Even if you have since had more children and you said in your estate plan that they should receive a portion of the life insurance policy, the initial beneficiary is not obligated to share the money. The life insurance company is required to abide by your beneficiary designation rather than your will. To change things, you need to update that specific designation.

This is why it’s very important to get details of your estate plan right. Having experienced estate planning guidance can help things go smoothly for your family.