One of the best ways to provide for your children after you pass away is to buy a life insurance policy. This may also be a tactic to provide for your spouse if you’re worried about passing away before he or she does.
Many people have policies worth $1 million or more, making up a significant part of their estate.
Why the beneficiary on your life insurance policy matters so much
That said, it’s important to remember that your life insurance is not really part of your estate in the same way that your investments are or that your bank account is. You own the policy, but you can’t access the money. When you pass away, that money doesn’t pay to your estate to get divided with your other assets. It pays out to your beneficiary as listed on the policy.
As such, you need to update that beneficiary designation if anything changes in your life. Do not count on your will or your estate plan to address the issue, because they cannot. The beneficiary designation determines where the money will go, even if it directly contradicts your will.
A common example is when a parent wants to split the life insurance money between multiple children, though they bought the policy when they only had one child. The correct procedure is to update the beneficiary designation form for the policy, rather than adding language in the will instructing them to divide it.
Oversights with insurance can be costly to your family
Mistakes and oversights can cost your family a lot and may mean your wishes are not honored. Be sure you know how to plan effectively so that your heirs never run into these issues.