You may think that it is a good idea to put your life insurance policy in your will when you’re making your estate plan. You know how much money the policy is going to pay out, so you assume that it just becomes part of your estate when you pass away. You want to use the will to distribute that money between your heirs.
This is a common mistake that people make because it does seem like a logical way to set everything up. But you actually don’t need to add your life insurance into your will, and a will that contradicts the instructions given to the life insurance provider is not going to take precedence.
How do insurance dividends get paid out
The thing to remember is that the life insurance provider asks you to list a beneficiary at the time that you purchase the policy. This beneficiary is the person who is supposed to receive the money when it pays out. You even have the option to list multiple beneficiaries, if you’d like to do so.
So, rather than entering your estate, the money from the life insurance policy gets paid directly to the beneficiary. It never becomes an asset that is owned by you or your estate, so it doesn’t have to go through probate to get divided. This means that it doesn’t need to be in your will at all.
Getting everything set up correctly
This is just one of the common mistakes that people make when they’re doing their estate planning. You can see how important it is to get everything set up correctly, and that’s why you need to understand the legal process even down to the smallest detail.