When it comes to life insurance, many policyholders are unsure of how it works. Some cases are simple and death benefits are paid to beneficiaries while other situations can be more complicated. Before choosing a life insurance policy, it’s good to know what it means for you, your beneficiaries, and your estate.
Death is inevitable, though it’s a topic that not too many are comfortable discussing. However, when securing loved ones and life’s assets, those with life insurance policies have some key decisions to make. Among the most important are beneficiaries, who receive death benefits.
One part that can get confusing is death benefits, especially when policyholders have a last will. A last will and testament is a separate document and often has to do with the policyholder’s assets, not their death benefit.
When choosing beneficiaries for a will, it’s recommended to consider someone who will arrange last wishes and oversee that all last wishes are fulfilled. The last will is how policyholders can designate their estate, passing it along to whomever they wish.
An insurance policy is not the same, with the death benefit coming from the insurance company. When choosing a policy, there is a guaranteed payout in the event of your death. It is that death benefit that goes to the beneficiaries and has nothing to do with your estate.
To make sure that your estate is properly handled, and your life insurance policy is paid out to those you who choose, you’ll have to make sure to secure a life insurance policy and select beneficiaries, and create a last will, selecting beneficiaries as well.
Beneficiaries are different when it comes to life insurance policies and last wills. Because of the difference in tasks, it’s recommended to know those tasks and choose accordingly. While you can choose the same in both cases, you might not want to, and we’ll tell you why.
Not only are the tasks different for each type of beneficiary but, each policy is different. While your assets come from your life’s accomplishments, your death benefit comes from the insurance company and their guarantee to pay when you choose a policy.
When choosing beneficiaries for your last will, there are a few things to consider. First of all, you’ll want to make sure that you find someone that will foresee that your last wishes are fulfilled and that your final arrangements are carried out. That includes initiating your funeral and closing all necessary costs.
As far as passing things down, you can name beneficiaries, giving them any of your life’s earnings. When choosing beneficiaries for your estate, it’s recommended to think about securing your loved ones and any business or prized assets you want someone you love to have.
In the case of a life insurance policy, your beneficiaries will receive a payout from the insurance company and nothing more. This policy is meant to kick into action when it’s needed the most, helping your loved ones close up your life’s costs and make sure that your funeral arrangements are secured.
Depending on the amount agreed upon, a life insurance policy could help your loved ones stay afloat if you were the sole provider and help them adjust to their life without you in it. Life insurance policies are there for the unexpected and in cases where one is approaching older age.
There is one exception to be aware of when it comes to life insurance policies and estates, and that’s when beneficiaries are no longer living at the time of death. Without a beneficiary to receive the death benefit paid out by the insurance company, the amount becomes part of your estate, passed on to those names in your last will or your closest kin.
It’s important to note this difference, as policyholders might not want their death benefit to go to their estate beneficiaries. That’s why it’s important to keep the policy and the last will up to date, ensuring that all parties involved are alive and well to make sure everything runs smooth.
A lot of policyholders don’t consider what would happen in the event of a divorce, unsure of what to do if they or their spouse decides to split. In Canada, assets are typically split between couples, though that doesn’t include the life insurance policy. That means that each party keeps their policy, and the death benefit still goes to named beneficiaries.
The only exception is when a child is involved, in which the courts can order one spouse to pay alimony and/or child support. The requirement by the Canadian court system could rule that parents take out a life insurance policy, one in which the spouse or the child are named beneficiaries.
These divorce obligations should be considered by all parties and taken into account to fulfill divorce obligations. Policyholders can still fill out their final will and testament as they please, though they may have no other choice when it comes to their life insurance policy if they and their ex-spouse share a child together.
Though it’s not pleasant to think about, those with spouses, children, assets, and businesses are encouraged to prepare for the unexpected. Creating a last will and choosing a life insurance policy are both recommended, allowing you to secure your assets and ensure that your loved ones are taken care of in the event of your death.
Finding the perfect policy and making sure that you name the right beneficiaries can be a challenge, especially if you don’t know your options. Sim can help you start the process, guiding you through your options and helping you find the best one for you and your needs. It’s better to be safe than sorry, resting at ease that your loved ones and property are secured.
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