When it comes to estate planning, life insurance plays an important role. But one question we often hear is: can you divide your life insurance using your will? The short answer is, not really. Life insurance doesn’t work the same way as other assets like your home or savings.
So, let’s walk through can you use your will to divide life insurance in estate planning and what you can do to ensure it goes where you want.
How Does Life Insurance Pay Out?
When you take out a life insurance policy, you name a beneficiary—or sometimes multiple beneficiaries—to receive the payout when you pass away. This money is paid directly to your named beneficiary, without going through probate or being influenced by your will. That’s why, even if your will says something different, the life insurance company will follow the names listed on the policy.
Life insurance operates separately from your will, which is why it’s important to double-check who’s named on your policy. If there’s a mismatch between your will and your life insurance paperwork, the policy wins every time.
Can You Change Who Gets the Money with Your Will?
We often get asked if you can override a life insurance beneficiary with your will, and in our experience, the answer is no. Once you’ve named someone as the beneficiary, they are legally entitled to that money. Even if your will tries to designate someone else, it won’t have any effect on the life insurance payout.
What Happens If You Don’t Name a Beneficiary?
If there’s no beneficiary named on your life insurance policy, or if the person you named has already passed away, the insurance money could be paid to your estate. In this case, a will dictates how the payout is distributed.
While this might sound like a solution, it can actually create more complications. When life insurance money goes to your estate, it enters probate process, slowing things down and adding extra legal costs.
Keep Your Beneficiary Up to Date
One of the easiest ways to avoid complications is to regularly update your beneficiary designations. As life changes—through marriage, divorce, or the birth of a child—it’s important to make sure your life insurance policy reflects those changes. Failing to update beneficiaries can lead to unintended outcomes, such as an ex-spouse receiving the payout instead of your current family members. Taking the time to update these details can save your loved ones from a lot of stress later on.
Should You Name Your Estate as the Beneficiary?
While you can technically name your estate as the beneficiary of your life insurance policy, we typically don’t recommend it. Doing so brings the payout into probate, which can cause unnecessary delays and increase legal fees. If you want more control over how the money is distributed, consider setting up a trust.
A trust lets you specify how to use the life insurance money, whether for your children’s education, your spouse’s support, or another purpose. This lets you have the money managed according to your wishes, avoiding the complications of probate.
Let’s Review Your Estate Plan Together
Life insurance is valuable to your estate plan but needs to align with your other documents.
If you’re not sure how to best manage your life insurance policy or if your estate plan is up to date, we’re here to help. Call us, and let’s sit down together to align everything with your wishes.
