Can A Will Change A Life Insurance Beneficiary?

Securing a life insurance policy and creating a will are two things that many are encouraged to do. Both work to secure assets and pass them on to loved ones, though they do so in very different ways.

Both require selection of beneficiaries, but can a will change your selection?

Types of Beneficiaries

When you take out a life insurance policy, you’re required to select a beneficiary. When planning your estate, you may also want to select beneficiaries, though they are not the same as those from your life insurance policy.

Life Insurance Beneficiary

When securing life insurance, the beneficiary that you choose is the one that will receive your death benefit. Many policyholders choose their families, doing so as a way to secure their futures and keep them away from high financial burdens.

Depending on the type of life insurance policy, an additional investment, a cash value, can also be passed to beneficiaries as long as there is no debt or fees owed to the insurer.

Last Will Beneficiary

Creating a last will is a way that individuals can handle their estate. They are encouraged to do so before their death so that they have the final say in what their loved ones receive and who is in charge of their life’s assets. Beneficiaries typically receive some sort of asset, whether it’s property or monetary earnings.

Life Insurance Beneficiaries Vs. Last Will Beneficiaries

When choosing a beneficiary that will receive the death benefit from your life insurance policy, most policyholders choose their spouse or children. With a last will, policyholders may choose the same, though they get to select what their beneficiaries receive.

Though the will is meant to pass assets on to the loved ones of their choosing, it cannot change the beneficiary of the life insurance policy. That’s because life insurance policies are not considered assets and are treated completely differently at the time of death.

When the policyholder dies, insurance beneficiaries will receive the total death benefit, able to use that toward relieving financial stress. Beneficiaries named in the last will receive assets in the amount specified by the deceased. Some assets typically passed to beneficiaries include bank accounts, real estate, and ownership of small businesses.

Changing Beneficiaries: Life Insurance Vs. Last Will

With a life insurance policy, policyholders can change their beneficiaries at any time. All they have to do is visit their insurance provider and add their beneficiary, providing the required information. This will not void the policy and will simply change the beneficiary who receives the death benefit when the policyholder dies.

With a last will, individuals can simply create a new one. Creating a new last will voids the previous one, automatically adding the new beneficiaries along with it. Even though they are considered last wishes, updating the will won’t change the beneficiaries of a life insurance policy and each one will need to be handled separately.

The Importance of Beneficiaries

When it comes to naming beneficiaries, those selected to receive the death benefit from a life insurance policy are highly important. Among the many reasons is the fact that they receive a guaranteed amount from the insurance company, which is meant to help them stay financially stable.

Additionally, death benefits are used to take care of unfinished business when the policyholder dies, helping families maintain assets or sell them, using the funds received to do so according to the policyholder’s last wishes.

With a last will, the beneficiaries often have no additional financial burden, simply receiving assets as designated by the creator of the will. While the government can take action if assets included debts, it cannot do so with others that are clear and owned by the creator of the will.

Things to Consider When Securing Assets

Professionals recommend that individuals not only take out an insurance policy but also plan their estate and create a last will. While both work together to secure assets and loved ones, they do so in different ways, which could be beneficial if used correctly. There are a few ways to maximize the benefits of both, including:

Offsetting costs

Sometimes, assets come with costs that become the responsibility of the family in the event of a death. If not closing costs, they could also come with high taxes that take away from the overall amount received. Having an insurance policy is one way to offset costs, as loved ones can use that to reduce tax burdens and other financial responsibilities left by the deceased.

A Second Investment

Some insurance policies (like whole life insurance), come with a cash value that adds up over time. This value is something that policyholders can withdraw from, using their funds to make additional investments or relieve financial stress. Withdrawing too much can reduce their death benefit, though it’s better than other loans that could come with high interest.

Choosing Beneficiaries Wisely

In the case of both insurance policies and beneficiaries, it’s recommended to choose wisely. Because your death benefit can be a substantial amount of money, it’s best to name someone that is responsible as your beneficiary.

You can do what you wish with your assets, but when it comes to cash from your death benefit, make sure it’s someone that has you and your loved one’s best interest in mind.

A sudden death can change everything, including the financial responsibility that’s left behind. If this falls to your family, they need funds to do it without financial stress.

Find the Perfect Fit

There are lots of options out there to choose from. Not all of those seeking an insurance policy are the same, so neither should their policies.

To find the perfect fit, give Sim a call. She has years of experience with insurance policies and financial planning, helping her clients create a secure future for their assets and loved ones. After one call, you’ll have a good idea of which direction to head and know which policy is perfect for you.