A life insurance policy may be a major part of your estate and the way you hope to provide for your family in the future. Your goal is to pass that money on to your heirs to provide financial assistance and options even long after you can no longer do so in person.
As such, you definitely need to know how the life insurance policy fits into your overall estate planning efforts. It does not work the same way as other assets, such as a bank account or simply cash that you have on hand.
At the time that you purchase the policy, one key step that you take is to pick a beneficiary. Unlike other types of insurance, this policy is never meant for you to use, so the insurance company needs to know who to pay the money out to when needed. By choosing someone on those forms, you legally give them the right to keep the payout from your policy.
Once you’ve done this, you must understand that the rest of your estate plan has no impact on where that money goes. The insurance company follows the instructions you gave them, and these take precedence over a trust, a will and any other documents you use to divide your assets.
In short, if you want to change who gets that money — after divorce, for instance — you cannot simply change your will. The money would still go to the beneficiary you chose at the time you bought the policy. That is the paperwork that you must change to shift the payout.
When estate planning gets complicated, be sure you know what steps to take. It’s generally better to get some experienced legal assistance than to try to handle things on your own.