life-insurance-beneficiary-vs-will

3 minute read

Life Insurance Beneficiary vs Will: When it Becomes Part of Your Estate Plan

Can a will change a life insurance beneficiary? Learn the difference between designated beneficiaries in a will and in a life insurance policy.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

Life insurance can offer you a great sense of peace of mind, knowing that you’ve set up your loved ones with something that’ll protect and financially care for them even after you’re no longer here. Your overall financial plan should include many components, all designed to make sure your wishes are known and to explain how every last detail should be carried out. But there’s one key element to life insurance that many people don’t think enough about: the Beneficiary. 

What is a Life Insurance Beneficiary?

A life insurance Beneficiary is the person you designate to inherit the proceeds from your life insurance policy after you pass away. Life insurance is a protective policy that serves to financially support those you’re closest to. These policies can have a wide range of death benefit amounts, and premiums (the amount you pay monthly or annually), among other factors, will reflect the actual benefit your Beneficiary will receive from the policy. For example, you will likely pay much less to hold a $100,000 policy than you would a $1,000,000 policy.  

How Life Insurance Beneficiaries Work

If you hold an active life insurance policy and you pass away, the Beneficiary you named on the policy will receive the policy’s death benefit. A Beneficiary can be one person or entity, or it can be a number of people. In addition to naming a primary Beneficiary (the first person who stands to benefit from your policy), you should also name at least one contingent Beneficiary. Contingent Beneficiaries would be second in line to receive the death benefit, and they would only get money if the primary Beneficiary was unable or unwilling to accept the proceeds.

Life Insurance Beneficiary vs Beneficiary of a Will

You’ve probably heard the term “Beneficiary” before, but it’s important to keep in mind that all Beneficiaries are not the same. The Beneficiary of a life insurance policy is very different from the Beneficiary of a Will. 

First, you need to understand that a life insurance Beneficiary will receive money from the life insurance policy after the policy holder passes away. The policies are final, and the Beneficiary (or Beneficiaries) named in the policy would be entitled to the money free and clear. A Will or Trust, on the other hand, is a unique estate planning tool that allows you to instruct how assets in your estate should be administered or distributed (passed on to others). 

Frequently Asked Questions

Does my life insurance need to have the same Beneficiary as my will?

No, the Beneficiary to your Will and your life insurance policy do not need to be the same person. The only exception to this rule would be if you live in a community property state, in which case if you’re married, your spouse could be entitled to both the assets in your estate, as well as (under some circumstances) any death benefit from a life insurance policy. 

Are life insurance Beneficiaries final?

Life insurance Beneficiaries are final in that as long as you’ve appointed them and you haven’t changed the directive, a Beneficiary will receive the death benefit after you pass away. 

Do I need a Will if I have life insurance?

Yes. You absolutely need a Will, even if you also have a life insurance policy with a designated Beneficiary. Wills are different tools with different purposes. A Will is used to instruct those you leave behind as to how the assets in your estate should be distributed. They’re an estate planning tool that guides your loved ones and the courts.

Does life insurance go through probate?

No, life insurance does not go through probate (which is a costly, often-lengthy, generally stressful process where the courts validate your Will and oversee how your estate is distributed). As long as you have properly-named Beneficiaries on your policy and they’re alive at the time you pass away, the policy payout will go directly to them.  

Who you should never name as Beneficiary?

Generally speaking, you can name almost anyone you want to be the Beneficiary of your life insurance policy. That said, you don’t want to directly name someone who’s disabled (you may threaten their eligibility to aid and benefits), minors, or your estate (because the money could end up being subject to probate, which means it may be available to creditors).

Life insurance is an excellent tool you can use if you want to protect those you love most after you pass away. Understanding the role a Beneficiary plays in your policy helps ensure you set up everything properly, so those you’re trying to protect actually get what you intend. Wondering what other parts of your Estate Plan you should be considering? Get matched for the appropriate Estate Plan from Trust & Will to meet your exact situation and needs, today.

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