Life Insurance Beneficiary vs. Will: Do I Need Both?

Estate planning is crucial to leaving your beneficiaries with your possessions as you intend. However, life insurance beneficiaries can conflict with the terms in your will if you aren’t thorough. Your life insurance beneficiary designation usually supersedes your will. So it’s best to have harmony between your policy and will to save your heirs from stress and confusion. You can use both life insurance beneficiaries and wills to impart money to others when you die. They can work with or against each other, so meticulous planning is key. Here’s how each works and which takes precedence.

A financial advisor can provide valuable guidance as you prepare for probate.

Life Insurance Beneficiary vs. Will: Key Differences

A life insurance beneficiary is a specific person or entity you designate to receive the payout from your policy. When you pass away, your beneficiary will receive payment from your life insurance company according to your policy. Who you designate as your beneficiary doesn’t influence who receives other assets from your estate, such as property or financial accounts.

On the other hand, a will is a legal document declaring your desires for who will receive your possessions after you pass away. Instead of defining the destination of one specific asset (like a life insurance beneficiary), a will contains a list of the beneficiaries to whom you wish to pass down your assets. In addition, if you have children who are minors, you can assign guardians for them in your will.

In addition, your will must go through probate court before your beneficiaries receive assets. The probate process confirms your will’s authenticity. It also interprets your will’s language and authorizes the named executor to carry out your intentions. Conversely, your life insurance beneficiary will receive payment from your policy without probate review.

Does a Life Insurance Beneficiary Overrule A Will?

If you designate one party to receive your life insurance benefit and a different party in your will to receive your money, your life insurance policy will win out. In other words, your intentions in your will won’t influence who receives your life insurance death benefit.

Your beneficiary designation in your policy is the sole determining factor – with one exception. If your life insurance beneficiary passes away before you and you have not named a contingent beneficiary, the money will go to your estate. Afterward, your executor will disburse assets from your estate according to the beneficiaries named in your will.

The law obligates your executor to accomplish your will’s stipulations even if your beneficiaries or family would prefer otherwise. But a life insurance beneficiary isn’t subject to the executor’s authority. Your life insurance policy will pay out to the beneficiary you designated. This even if the language in your will contradicts your policy. Your executor’s authority won’t overrule the life insurance beneficiary identified in your policy.

Can I Change Life Insurance Beneficiaries?

Generally, you can change life insurance beneficiaries by contacting your life insurance company. For example, if you have a child, you could add them as a contingent beneficiary in your policy. However, naming a beneficiary in your will for your life insurance isn’t identical to changing your policy through the company.

So, if you want to change life insurance beneficiaries, you can only do so by communicating with your life insurance company. The language in your will, no matter how strongly worded, does not achieve a change in life insurance beneficiaries.

Do You Need a Will?

While a will doesn’t have the power to change life insurance beneficiaries, it’s a crucial element in your estate plan. Probate court uses your will to determine who receives your assets. That said, you may need more than a will to guarantee your executor or trustee disburses your wealth according to your intentions.

For instance, a living trust can designate beneficiaries and doesn’t have to go through probate court. In addition, it’s crucial for the beneficiary designations of your life insurance policy and retirement account to line up with the verbiage in your will.

Bottom Line

Your life insurance policy operates independently from your will and isn’t subject to probate court. Although your will is a significant legal document summarizing your wishes, it won’t affect who receives your life insurance payout. While probate court and your executor do their utmost to fulfill what you state in your will, they can’t override your life insurance beneficiary designation. As a result, it’s wise to align your will and beneficiary designations so there is no friction or conflicting priorities when your executor carries out your intentions. In addition, it’s best to have a will to bring cohesion to your estate plan instead of relying on separate beneficiary designations.

 Tips for Creating a Will

• A financial advisor can help you create a will that matches your beneficiary designations. They can review your finances and create a strong financial plan whether you just started your first job or are on the way to retiring. Luckily, finding the right financial advisor doesn’t have to be hard. In fact, SmartAsset’s free tool matches you with up to three vetted financial advisors in your area in five minutes. Get started now.

• If you have loved ones you want to pass on your wealth to, a will is essential. Here are four things to know about making a will.

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