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How Insurance Policies Fit Into an Estate Plan

An estate plan contains several important provisions. While your individual needs may vary, experts advise you to have not only a will but several types of powers of attorney, plans for long-term care, special deeds, trusts, and more. Read on to find out why life insurance should be part of even the most basic of estate plans.

Beneficiaries Take Priority

A large part of an estate plan is ensuring that the property contained in the estate passes down according to the deceased's wishes. When it comes to a will, those named as beneficiaries may have to wait several months before they can take ownership of their property. That is because the will has to be probated and that may take several months. There are other ways to do things, though, and they involve skipping probate through the use of trusts, deeds, and special designations on bank and investment accounts. Those moves allow beneficiaries to move to the head of the line and take ownership of property and funds as soon as a few weeks after a death. Another way to avoid probate is to name a beneficiary on a life insurance policy.

No Probate for Life Insurance

All of the above ways of skipping probate have something in common: they allow the property to pass directly to a beneficiary after death. Life insurance policies are in that group with the named beneficiary or beneficiaries taking possession of the proceeds immediately (though it will take a few weeks for the policy to be processed). One exception exists, however, and it's important to take note of it. If the person named as the beneficiary of the life insurance policy has preceded the deceased in death, the policy could become part of the probate process. That is a very good reason to revisit your estate plans often and keep your beneficiaries up to date.

Other Uses for the Life Insurance Policy

Life insurance policies are always the property of the named beneficiary, however, it's also common to use a life insurance policy to secure burial and funeral arrangements. It's always best to speak to an estate attorney about your final wishes and so-called pre-need plans should be part of your estate plan. However, funeral homes will commonly accept a life insurance policy as a deposit or partial payment if no other arrangements have been made. However, the named beneficiary must agree to this arrangement and sign the policy over to the funeral home.

For help with a complete estate plan that includes all of the above, speak to an estate planning attorney.