How Do Life Insurance Policies & Wills Combine?

June 29th, 2021 abriinsurance
Last Will And Testament

Welcome readers, we hope you’re having a great week so far as we make our way to close out June, 2021! Did you accomplish anything notable this past month pertaining to your insurance and financial livelihood? If so, then well done! National Insurance Awareness Day was this month on the 28th, and we were thrilled to help people get set up with the right levels of insurance they need for themselves and their family. It’s a pleasure being able to help people feel more protected and give them the ability to rest easy that their insurance is taken care of.

One part of preparing your financial plan and long term stability though isn’t too easy of a conversation: wills and testaments. Your life insurance and your will and testament go hand in hand as they both establish the structural support your loved ones may need should something unexpected happen to you. Planning for accidental death and being prepared for what you may leave behind is crucial. So how do life insurance policies and wills combine? There are a couple different ways that these two preventative measures combine to make your passing more financially bearable to your relatives and resources. Just to touch the tip of the iceberg of this topic, setting up a life insurance policy and creating a last will and testament will prepare your loved ones by giving them the resources they need to be able to pay for any funeral related expenses and then some.

Life insurance is a legally binding contract between an insurer and a policyholder that allows the policyholder to pay monthly premiums in preparation for their passing. When the policyholder passes away, the insurer is then able to distribute a sum of collected wealth to the beneficiaries named by the policyholder beforehand in their will and last testament. A life insurance policy is only as strong as the insurer or company providing it, however, so it’s important to do plenty of research or work with an insurance broker like Abri Insurance in order to find the best options at your disposal.

Life insurance policies often ask for a specific beneficiary to be listed; most individuals list their spouse or an immediate family member. In the event of a policyholder’s death, a ‘death benefit’ will be paid out directly to the beneficiaries on the account. There can be both primary and contingent beneficiaries as well, if the primary beneficiaries are not able to be located, communicated with, or are also passed.

A will is a legal document used to describe and list out the assets in your estate and is not tied to your life insurance as the death benefit is not counted within that estimation and goes straight to the beneficiaries upon the event of your death. However, if your specified beneficiaries have all predeceased you, then there may be a situation where your death benefit is paid out to your estate. This would be the way your will and life insurance policy tie together because the beneficiaries of your will would then be evaluated and considered the next option. What’s really important is that you don’t go without creating a will as if you pass without one, state law is able to determine who gets the proceeds from your estate overall.

So, we’re sure you’re wondering, well why have a life insurance policy that lists beneficiaries at all if it will default to a will at some point? Well, specifying beneficiaries is typically better because if your life insurance pays out to your estate your creditors may be able to take a portion for themselves, and taxes and probate fees could take away from it as well. Those kinds of fees vary from state to state, but all of it can be avoided by taking time to name specific individuals as beneficiaries in your policy.

Another important thing to note is that your life insurance policy and will are not automatically tied and if you update one it does not update the other. Since life insurance is moreso related to your death benefit, and a will is more related to your estate in whole, you may have completely different people in mind as beneficiaries on each! You are completely able to list different people on either, but it’s important to plan how they will work together when the time comes for your estate planning and those other not so fun conversations.

If you don’t yet have a life insurance policy, we highly recommend taking time to reach out to our team and let us help you get situated with a policy that works best for you and your life. Life insurance is most important for individuals that have minor or special needs children, adults that own property together, elderly individuals who may want to leave their wealth to their adult children, young adults with parent co-signers on loan debts, individuals that expect to owe estate taxes, families who can’t afford funeral expenses, businesses with key employees, and married pensioners. It’s also a great idea for young adults in their early twenties to look into insurance rates earlier because the younger and healthier you are the better your rate may be and the sooner you’ll be able to ‘lock it in’.

Preparing for unexpected or accidental deaths isn’t easy, and the thought of what your loved ones may go through after you’re gone can cause a lot of anxiety for some. The important thing to keep in mind is that by setting up the dual structure of a life insurance policy and a will or last testament, you’re doing the best you can to protect them in those events. It’s even beneficial to keep track of little things like typical passwords you used for different accounts, values of special items in your home, and where certain important documents are within your home. Not only is it painful not being able to communicate with a loved one anymore, but it’s difficult and stressful to navigate through an estate without understanding what’s there.

If you need help preparing your will and last testament, or taking steps in updating or signing up for a life insurance policy, Abri Insurance is ready to work with you! Just reach out and give us a call, we’ll get you connected to one of our local insurance brokers who will help you get started finding the best fit for you!

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