Even though it can be tough, you have to think about your departure from this earth and the loved ones you’ll leave behind. In addition to this sad reality, you also have to think about how your loved ones will be protected and what steps you need to take to make sure this happens. Do you leave them as beneficiaries on your life insurance plan or do you write a will? What is the difference between life insurance and a will beneficiary? What exactly are beneficiaries? Is a hot dog a sandwich? Let’s explore these questions below (I can’t promise I’ll discuss the complexities of a hot dog, though).
The Wyshbox Blog
- Defining who gets the dough
- Life insurance will vs. beneficiary will
- How do you choose?
Defining who gets the dough
Ok first things first, what is a beneficiary? This is a person, most likely people, who will receive your assets in the event of your death, whether it be a house, a car, or a lump sum of money. It’s important to have a policy or legal document in place to make sure they are protected financially and are able to continue to support themselves once you are dearly departed. Trustees are financial custodians that are usually put in place to be able to handle the actual distribution of your money to your beneficiaries and to make sure no funny business happens that would impede your loved ones getting the help they need and what they are owed.
Now that we have established what a beneficiary is, what is the difference between beneficiaries in your will vs. the ones in your life insurance policy?
Life insurance will vs. beneficiary will
Being confused between beneficiaries for life insurance vs the ones on your will makes sense. Essentially, they are the people who will get your money and assets when you die. But there’s a clear difference between the two.
When you buy a life insurance plan you pay a monthly cost that puts a lump sum of money to your name, also known as a death benefit. When you die your peeps get this lump sum to be able to pay off any debt, whether it be mortgage, credit cards or more. You can designate how you want to divvy up the cash amongst your beneficiaries. You can also add a contingent beneficiary, which is a backup person who will get the benefit if your main beneficiaries die or disappear, post your death.
A will is a legal document that distributes assets in your estate. It can also go into detail about who will care for your children, who receives property and will reduce the possibilities that any of your heirs will have to battle in court to receive what’s rightfully theirs.
When you set in stone the terms of your beneficiaries they are final and a will cannot override them, so it’s important to update or change the people in your plan to make sure they receive the death benefit. Also your life insurance and your will do not have to have the same beneficiaries, so if you update one you must update the other. Now where things can get murky is if all your beneficiaries predecease you, meaning they die before you. Should this happen, and there is no contingent person on your plan, the money will go to your estate which could be part of your will. If there is no will, the state and/or the courts will determine where the funds should go.
How do you choose?
Ultimately, you decide what’s best for you and your family. Understanding the difference between life insurance and will beneficiaries may seem intimidating but it’s imperative to distinguish them. Don’t let the jargon scare you!
A life insurance policy is a guaranteed way to set in stone the death benefit for your loved ones whereas a will discusses more detailed ways your estate will be divided and can be battled in court. Having a life insurance plan, and the beneficiaries you want in it, is the safest way to assure their protection once you pass away.