Life insurance and wills are each crucial components of an estate plan. Both can help protect your loved ones and distribute your assets according to your wishes. However, each operates differently and plays a distinct role in your estate plan. Knowing these differences is vital to creating your will and getting the right life insurance policy. Let’s dive deeper into some key differences between life insurance beneficiaries and wills, including how they work, what they cover, and why having both is important.
How do life insurance and beneficiaries work?
Life insurance is a type of plan where an insurer agrees to pay a death benefit payout to beneficiaries in case you pass away while the plan is active. They can use this to help replace your income, pay down debt, and save money for the future.
Your beneficiaries are the individuals or organizations you select to receive your death benefit. You can name one or multiple beneficiaries and designate what portion of the death benefit each will receive. You can also name contingent beneficiaries that will get the payout if primary beneficiaries can’t receive it.
Life insurance policies allow you to name individuals, qualifying charitable organizations, and certain trusts as beneficiaries. Aflac offers a range of life insurance policy types, like term and whole life insurance, to fit your needs and budget.
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How does a will work?
A will is a legal document that states how you would prefer your assets and property to be distributed when you pass away.1 Assets and property you can put in a will can be tangible or intangible. Tangible property includes:
- Real estate, such as your home
- Vehicles, such as a car or boat
- Precious metals
- Collectible items, such as artwork
- Furniture
Intangible property includes:
- Bank accounts
- Retirement accounts
- Stocks, bonds, and other securities
- Royalties and residual payments from creative works
You can name an executor who is responsible for following the will’s instructions for distributing assets. Many people choose to name a trusted family member, friend, or lawyer to be the executor.
Differences between a life insurance beneficiary and a will
Here are some key differences between life insurance beneficiaries and those named in a will:
- Wills often have to go through probate court.2 Life insurance beneficiaries can receive the death benefit without probate.
- A will outlines your wishes for how you would like your assets to be distributed. Life insurance, on the other hand, only pays a death benefit to your beneficiaries.
- A will requires an executor to distribute the assets. Life insurance beneficiaries must only contact the insurer to receive the death benefit.
- A will takes effect after you pass away. Life insurance policies may allow you to use them while still alive through the cash value growth component or certain policy riders.
Does a life insurance beneficiary supersede a will?
In general, life insurance beneficiaries generally overrule a will.3 For instance, if your will states that you want your partner to receive your death benefit, but the policy itself lists your sibling as the only beneficiary, your sibling will be eligible to receive the death benefit and your partner will not. As a result, it’s wise to check your estate plan and life insurance policy regularly to ensure the policy’s beneficiaries match your wishes.
Do I need to designate the same beneficiary for life insurance and my will?
You don’t need to designate the same beneficiary for your life insurance policy and will. Assets that are payable upon your passing, such as life insurance, can be excluded from your will since the policy’s beneficiaries take precedence. Furthermore, life insurance should be excluded from wills because the will must go through probate, which can delay the death benefit payout and incur more costs.
It’s vital to inform life insurance beneficiaries of their status on your policy and give them essential information, like the policy number. This can help them file a claim when you pass away and get the death benefit sooner.
Should I have life insurance and a will?
Yes, it is generally recommended to have life insurance and a will. Having a will, at minimum, is a good idea to ensure your assets and property are distributed according to your wishes. This can streamline the distribution process, reduce costs, and prevent family conflicts from occurring.
Having a life insurance policy is also good because it helps give you peace of mind and protect loved ones if you pass away. The death benefit can help them replace your income for a substantial period, pay off debts, and fund other long-term goals. Furthermore, a permanent life insurance policy can help you potentially build wealth through the cash value component.
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Life insurance and wills each play a vital role in an estate plan. Your will ensures your assets and property are distributed according to your preferences. This can help your loved ones keep your assets and wealth. However, a life insurance policy is a crucial piece to include as well. It can help protect your beneficiaries if you pass away, and it skips the probate process.
Together, your will and life insurance policy provide your beneficiaries a comprehensive financial safety net and allow you to leave a larger legacy. Speak with an Aflac agent today to learn about your options for adding life insurance to your estate plan.
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Disclaimer
1 Investopedia – What is a Will, What Does It Cover, and Why Do I Need One? Updated April 30, 2023. https://www.investopedia.com/articles/pf/08/what-is-a-will.asp. Accessed May 11, 2023.
2 LegalZoom – Do All Wills Need to Go Through Probate? Updated January 25, 2023. https://www.legalzoom.com/articles/do-all-wills-need-to-go-through-probate. Accessed May 11, 2023.
3 Policygenius – Does a Will Override a Beneficiary? Updated January 11, 2022. https://www.policygenius.com/wills/beneficiary-designation-vs-will/. Accessed May 11, 2023.
Aflac Coverage
Life (A68000 Series) - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term and Whole Life (B60000 Series) - In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life (Q60000 Series) - In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX. Group Term Life (Q60000 Series) - In Delaware, Policies Q60200M. In Arkansas, Idaho, Oklahoma, Oregon & Texas, Policies ICC18Q60200M, ICC18Q60300C, ICC18Q60400C. Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
Tier One Coverage
Life (Final Expense Life) - In Arkansas, Delaware, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22.
Tier One coverage is underwritten by Tier One Insurance Company.
Coverage may not be available in all states. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions.
Aflac’s family of insurers include Aflac, Aflac New York, Continental American Insurance Company, and Tier One Insurance Company.
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Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211
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