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Do you leave an heir your life insurance in your estate plan?

On Behalf of | Aug 11, 2023 | Estate Planning |

A life insurance policy can be an excellent way to leave a notable amount of wealth to your heirs. People often take out the policy when they are very young, as it will be cheaper, but you can buy them at any age. If you pass away, the policy then pays out to your beneficiary, so you know that you’re leaving them something significant.

But as you are doing your estate planning, you will be deciding what other assets to leave to your heirs and how to divide things up. You may believe that you need to include your life insurance policy in the will or in another part of the estate plan to make sure it goes to the person you intend. But do you actually have to do so?

The beneficiary designation is the most important factor

As a general rule, the answer is no. You do not have to include your life insurance policy in your estate plan because you should’ve already chosen a beneficiary when you purchased the plan initially. This beneficiary designation – and it can be to multiple people – determines who the insurance company is going to pay.

In fact, in a situation like this, adding it to your estate plan could just cause conflicts. Your heirs may say that the estate plan should govern how the money is divided, but the insurance company isn’t going to adhere to that. If you want to change your beneficiary, you are best off to change the official designation.

There are some cases in which a beneficiary will not be available. This could cause the policy to pay out into your estate and then be divided with your other assets. But, once again, it is usually better to just update your beneficiary designation directly.

Financial issues with estate planning certainly lead to a lot of complex questions. Make sure you know what steps to take and what legal options you have.