Your life insurance policy benefits the people who depend on you, such as your spouse or your children. The more dependents you have and the younger they are, the more life insurance coverage you may require for their protection. Your insurance will be an important asset for your peace of mind and the stability of your dependents.
It is smart to include your most valuable assets in your estate plan. You can designate recipients for property ranging from your bank account to your personal vehicle. It may initially seem like a good decision to list the beneficiary for your life insurance policy in your will or trust. However, doing so can actually be a big mistake.
You already have a beneficiary designated
What you need to remember about life insurance is that you filled out paperwork when purchasing the policy designating specific individuals as your beneficiaries. Although you can certainly reference those designations in your will or trust, you cannot alter your insurance designations solely through the use of a will.
The issue with listing your life insurance in your will is that you might change your beneficiary designation in your will when you divorce or add more children to your family. If you then fail to make the corresponding changes to your actual policy paperwork, you may have a false sense of security. In circumstances where estate planning documents contradict life insurance paperwork, it will be the policy documentation that takes precedence in probate court.
Even if you filled out that policy paperwork decades ago and have obviously invested substantially in making routine updates to your will, your instructions in your will regarding your life insurance will never have the same authority as beneficiary designations filed with the insurance company. If you don’t include your life insurance in your will, then you don’t have to worry about making the mistake of assuming it will grow to the right people.
Reviewing your life insurance is a smart move when reviewing your estate plan
Your beneficiary designation isn’t the only thing about your life insurance that may change in the years after you purchased the policy. How much coverage you require to adequately provide for your loved ones may also change. When you get into a habit of reviewing your estate plan every few years or after any significant family changes, it may be smart to include your life insurance policy with the other documents that you review and update.
Learning more about common estate planning documents can help you avoid mistakes that could compromise the Legacy you leave when you die.
