Life Insurance Beneficiary vs. Will: Does the Policy Designation Override the Will?

A person’s overall financial plan should include many components to explain how the distribution of the financial assets should be carried out. Since there are so many different components to the estate plan, they can sometimes create confusion as to who receives what, and lead to family disputes. Two most common areas of estate disputes are life insurance beneficiary designations and wills. People are unclear about the differences between them and whether the will supersedes the life insurance beneficiary designation.

In this article our life insurance lawyers address these concerns to help both will and life insurance beneficiaries understand their rights to the deceased’s financial assets.

Life Insurance Policy vs. Will

Both life insurance policy and last will and testament are critical parts of an estate plan as they provide financial support to the deceased’s loved ones after he or she passes away. But they are different. 

Life insurance is a contract between the policyowner and the insurer based on which the company pays a death benefit to the person the policyowner chooses. The will, on the other hand, is a legal document explaining how the deceased wishes for the properties in the estate to be administered and distributed to the people he or she named in the will. 

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What Is a Life Insurance Beneficiary

A life insurance beneficiary is a person the insured chooses and designates on the policy to receive the life insurance payout after he or she passes away. This is applicable regardless of whether it is life insurance obtained through work or a private policy. 

The policyholder can name a person, an entity, or a number of people who receive a percentage of the coverage in accordance with the insured’s wishes. It is recommended to list a primary beneficiary, as well as at least one contingent beneficiary to collect the death benefit in case the primary beneficiary is unavailable to do so.

If there is no beneficiary designated on the life insurance policy or the beneficiary passed away, the death benefit may go to the insured person’s estate. This means that it will be distributed to the will beneficiaries depending on the terms of the will. If there is no will, state law will decide who gets the payout.

The life insurance beneficiary does not need to be the same person as the one appointed in the will. They can be different people. A life insurance beneficiary will collect a payout from the insurance company and the person appointed to receive in the will will collect the decedent’s property. However, if the insured lives in a community property state the law dictates that the surviving spouse may be entitled to half of both the estate assets and the life insurance death benefit if they are considered community property. Our lawyers explain how community property laws work in greater detail in our article about life insurance beneficiary rules for spouses.

Does a Will Override a Life Insurance Beneficiary Designation?

A will or trust does not supersede a life insurance policy as long as the insured named one or more beneficiaries. Beneficiary designations are final. If the life insurance beneficiary is different from the person named to receive life insurance benefit in the will, the payout goes to the person designated on the insurance company beneficiary form. The person named in the will is entitled only to the property included in the will.

This is why it is important for policyholders to review the insurance beneficiary regularly and file a change-of-beneficiary form after major life events. For example, if the insured divorced or remarried but failed to update the beneficiaries, the former spouse may still have the right to the death benefit if she or he was named the beneficiary before the divorce. If the new spouse wants to take the case to court, the process could take a lot of time and be expensive. Read more about life insurance and divorce

A change of beneficiary made in the will does not override the insurance beneficiary designation as some claimants erroneously seem to think. The insured needs to change the beneficiary on both documents if he or she wants the insurance company to pay the death benefit to the right person.

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Does Life Insurance Go Through Probate?

Probate refers to the process of administering a deceased’s will or the estate of a deceased person without a will, from organizing their assets to distributing the inheritance. 

Typically, the life insurance policy is not part of the will. The policy amount is paid directly to the beneficiary and never goes to the estate. Since it cannot be counted as part of the estate, the life insurance benefit does not go through probate or through the will. As long as the insured appointed a beneficiary per the requirements of the policy and they are alive at the time the insured passes away, they are the only ones who can receive the death benefit.

Our life insurance lawyers dive deeper into this subject in our blog post about life insurance policies and probate.

Appointing a Trust as the Life Insurance Beneficiary

Both life insurance and will can name a trust as the beneficiary, which holds the assets until the trust beneficiaries are allowed to access according to the trust terms. A trust is included in the estate plan, whether as part of the will or as a separate, revocable trust. By putting the life insurance in a trust, the payout is made to the trust instead of directly to the beneficiaries, while the deceased can direct that the death benefit is used for certain purposes and at certain times.

Do People Need Both Life Insurance and a Will?

Yes, both life insurance and a will are necessary when planning the estate. Life insurance brings new resources to fund the family’s expenses. Unless there are reasons for insurance companies to deny paying the claim, the death benefit is available shortly after the insured passes away. 

A will, on the other hand, is a planning tool that provides instructions as to how to administer the property the deceased already owns. If there is no will at the time of death, the state will appoint a lawyer to see the case through probate. Attorney fees will be extracted out of the estate assets and only after all the affairs are settled, the remaining property will be distributed to the people appointed in the will. The probate can be a lengthy process during which the assets are frozen. This may leave the surviving family under financial strain. 

does life insurance beneficiary supercede a will

What to Do if Your Beneficiary Designation Is Contested

Is not uncommon for this confusion between the rights of a life insurance beneficiary and those of a will beneficiary to lead to beneficiary disputes between the decedent’s loved ones. If your beneficiary designation is contested, you should immediately seek legal consultation. 

At our law firm, our beneficiary dispute attorneys have years of experience in handling situations involving competing claimants. With our support, many clients recovered the death benefits they were rightfully entitled to in accordance with the terms of the insurance policy. 

We work on a contingency fee basis, which means there is no legal fee unless you collect the death benefit. Only then will we charge a reasonable legal fee you are comfortable with.

If you are facing such a situation, call us at (888) 510-2212 for a free consultation. We have the knowledge you need to determine whether you have a claim and can design a comprehensive strategy to win your case.

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About the author

Attorney Tatiana Kadetskaya has over 10 years of experience in life insurance law representing beneficiaries and policy owners. She is best known for successfully collecting denied and delayed claims and settling complex beneficiary disputes and interpleader lawsuits.

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