Is Life Insurance Part of a Deceased Estate?

When you have a life insurance policy, you are able to enjoy coverage for the remainder of your life or the term agreed upon in your policy. In the event of your death, the chosen beneficiaries will receive the death benefit from your policy, which is separate from your estate.

Though your policy is not part of your estate, it can be used as a way to secure your assets and reduce some of the financial burdens left behind.


Using Life Insurance for Estate Planning

Your life insurance benefit is not part of your estate planning. When you choose a policy, you’ll first have to choose a beneficiary, which is the one that will receive your death benefit. Policyholders typically choose their spouse or their children, going with someone they know will need help when they are gone.

In addition to a life insurance policy, there are some individuals who choose to also create a last will. Unlike the death benefit, the assets presented in the last will are subject to taxes and, in some cases, can add more financial stress to beneficiaries.

It’s for that reason that it’s recommended to have both, using one to offset some of the burdens bought upon by the other. Professionals recommend using an insurance policy along with the last will for a more secure financial future.


Offset Taxes

Assets owned by the deceased are subject to taxes, some of which could amount to large numbers. This burden is left for the beneficiaries to take care of something that not many who create a last will think of. Because the death benefit is not taxed (in most cases at least), policyholders could use it as a way to offset taxes.

The death benefit can be a substantial amount of money and can pay the required taxes for assets and leave beneficiaries to enjoy their items without the additional financial stress.


Minimize Debts

Another concern when it comes to estates is debt. Sometimes, policyholders die without having their assets paid off, including real estate, vehicles, and even personal loans. In the event of their death, they may want to leave these with their family, though this means they will have to continue payments.

This is when the death benefit can come in handy, covering some of the obligations and paying down debts. Access to the death benefit from an insurance policy is instant, something that doesn’t happen with assets.


Beneficiaries: Life Insurance Vs. Last Will

Because beneficiaries play such a big role in both life insurance and estate planning, it’s good to know the difference. Both of them require that policyholders choose wisely and that they understand the role that they take on in the event of their death.


Life Insurance Beneficiaries

When choosing life insurance beneficiaries, policyholders should consider their loved ones or the ones for who they are responsible. The death benefits that beneficiaries receive is final, meaning that it cannot change with the last will.

Upon the death of the policyholder, life insurance beneficiaries will receive the death benefit almost instantly, able to start relieving financial pressures right away.


Last Will Beneficiaries

Beneficiaries for the last will are different than those for life insurance, mostly because they receive assets after probate. Typically, policyholders will choose their spouse or their children, passing them down their home, monetary gains, or their business, keeping things in the family.

Even if policyholders name a beneficiary in their last will, it will not override the beneficiary in the life insurance policy.


Things to be Cautious of When Securing Financial Futures

Securing the financial future of oneself and their family is a big deal. It requires some planning and some thinking, finding the best policy and coverage for their situation. Before making anything official, here are a few things that you should be aware of.


Beneficiaries are not all the same

As we mentioned above, life insurance and last will beneficiaries are two different things. Make sure that you’re considering who you choose for each and know what their benefits will be upon your death.


No beneficiary means bad business

For both life insurance and last wills, failing to name a beneficiary could be bad news. In the case of life insurance, the death benefit will automatically go toward the assets of the policyholder, in which case it is automatically subject to taxes.

This could be because policyholders failed to name someone or in the case that the beneficiary dies before the death benefit is paid out.

For the last will, not naming a beneficiary could mean that assets go to the closest relative. If that’s impossible to find, assets go to the government and are no longer in the possession of anyone.

Choosing a beneficiary is not key to securing financial futures properly and ensuring that your absence doesn’t create financial stress.


Choosing the perfect coverage is key

Life insurance policies come in all shapes and sizes, which is a great thing when it comes to finding the perfect fit. Before choosing a policy, those interested are encouraged to take a look at their assets and debts, ensuring that they have enough coverage to relieve financial stress.

That means comparing assets to debts and taking a look at all investments, coming up with an amount that’s needed to secure assets and keep families secure in the event of a sudden death.


Finding your Perfect Fit

When it comes to finding the perfect coverage and options for your assets, it’s recommended to work with a professional. They can help you weigh your options and get you set up in a way that guarantees you’ll get the most out of your coverage.

To find out your options and get a look at the coverage you need, give Sim Gakhar a call. Sim has experience with life insurance and investments, working with clients to help them live peacefully knowing that their assets and their families are secured, even when they are no longer around.


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