When making an estate plan, it’s natural to consider your life insurance policy. If you’ve already purchased such a policy, your goal is to provide substantial financial assets to your chosen beneficiaries. When you pass away, the life insurance company will give them the payout.
But do you need to address this in your will? For instance, if you write in the will that all of your adult children are supposed to equally split the life insurance payout to keep things fair, is that going to affect the distribution?
A will does not supersede the insurance policy
The important thing to remember when considering these issues is that the will does not take precedence. When you purchase a life insurance policy, you select a beneficiary. Even if your will gives other instructions, the life insurance company is going to follow the beneficiary designation.
For example, say that you decided to buy the life insurance policy after your first child was born. You named them as the beneficiary. If your will now says that they should split the payout with other beneficiaries, they do have the option to do that if they would like, but they are not obligated to do so. The life insurance company isn’t going to split up the payout. They will just give your firstborn child the entire amount, and it isn’t bound by your estate plan because it’s not part of your estate to begin with.
There are steps you can take to make it part of your estate. One common example is naming a trust as the beneficiary and using the life insurance policy to fund the trust, which can then be used to manage the distributions.
But no matter what you decide to do, the important thing is to understand all of your legal options and obligations at this time.