You know that people pass away unexpectedly. If that happens to you, your heirs will at least have a life insurance payout to help them make ends meet. That is, if you’ve invested in a life insurance policy.
A life insurance policy you’ve purchased may be one of the most financially significant assets that you own. It may be second only to your home or a business that you own. Does this mean that you need to put that life insurance payout into your estate plan somehow, in order to split it up between your heirs?
You should make a beneficiary designation
In most cases, you actually don’t need to include your life insurance in your estate plan at all. Instead, when making the plan, you’ll choose at least one beneficiary. Once you pass away, the life insurance company will identify that beneficiary and send them the payout.
If you have a named beneficiary, then that is not going to be trumped by anything you put in your will. For instance, many people will simply name their first child as the life insurance beneficiary on a policy that they bought as a new parent. But they may have more children over the years and not update that policy.
In a situation like that, even if you address your life insurance in your will and say that your children should all split it, the initial beneficiary will not necessarily have to do so. The life insurance company is not concerned with what you put in your will, but just with who you chose as your beneficiary. One exception to this rule is if you don’t have a beneficiary or they have passed away before you did. In a case like that, the life insurance may simply pay out into your estate.
Creating a broader estate plan
A proper estate plan can help to eliminate disputes between heirs. You may not need to address life insurance in your plan, but you’ll want one in place to safeguard your interests in other ways. Seeking legal guidance is a good place to start.