When an individual passes away, the life insurance policy is usually paid by the issuing company to the family through the beneficiary that has been chosen by the policy owner. In this article, we will answer an important question that most individuals research when deciding on an insurance policy and how it will affect their families when they die. As part of an estate, life insurance is essential information needed to properly plan for your family’s future when you are gone.
Life Insurance and Your Estate
Life insurance policies are usually not part of an estate because they require a beneficiary to be named. If you designate a beneficiary before you pass, the payout will be received by the policy beneficiary. What is the definition of an estate in life insurance? It is the collection of an individual’s property, investments, net worth, and other assets owned by an individual. If your policy has a beneficiary named, it will bypass probate and will be paid directly to your family through the beneficiary. If you want to keep your policy separate from your estate, you must name a trusted beneficiary on your policy.
When Does Life Insurance Become Part of an Estate?
In the section above, we have discussed how life insurance can be avoided as part of an estate. However, there are some exceptional circumstances where the policy will be subject to the rules of the estate. In this section, we will discuss the reasons why your life insurance policy could become a part of your estate.
- If there is no designated beneficiary, your policy will be paid directly to your estate.
- If you fail to fill out a beneficiary form, the payout will go directly to your estate, and you will be unable to bypass your estate for the policy to go directly to your family.
- If the designated beneficiary is deceased, the payout will go directly to the estate.
The above points are three major reasons why your life insurance payout could be paid directly to your estate. These instances can be avoided by completing the designated beneficiary form and picking a trusted individual who has little likelihood of preceding you in death. The laws guiding estate taxes vary from state to state, so you can save yourself time by understanding how the laws work in your state.
Most people who own insurance policies look for the best way to protect the payout and keep it out of reach of creditors and others who may want to claim the money. One way to accomplish this goal is to prevent the funds from being sent to the estate when they pass away. Do you have additional questions about your life insurance coverage? If so, then contact the experts at Randy Jones Insurance Services in Pleasanton, California. Our dedicated team is eager to assist you with all your personal insurance needs today.
