• Robyn Saito

How Life Insurance Works with Wills and Trusts

Updated: Dec 29, 2021

Your last will and testament and your life insurance are both necessary parts of your financial plan. Both a will and testament and life insurance can help support your loved ones after you die by providing them with the resources they need to pay their expenses.

Life insurance pays a death benefit to any person or organization you name as a beneficiary on your policy. Your last will and testament distribute the assets in your estate to the beneficiaries you name in the will. In both cases, the beneficiary can be a trust, which owns the asset until the beneficiaries of the trust are allowed to access it.

Can I use my will to distribute a life insurance death benefit?

You can’t use your will to modify or cancel your life insurance policy. That means that if you named someone as a beneficiary of your life insurance, that person would remain the beneficiary after you die, and the death benefit will be paid out to him or her.

The will directs probate, the legal process by which assets are distributed according to the will; the value of any assets not specifically bequeathed to the beneficiaries of your will must be divided up among all the beneficiaries of the will. With one exception (see below), your life insurance’s death benefit doesn’t go through probate, meaning that the terms of the will don’t govern it because it already has an assigned beneficiary.

Life insurance is not an asset in the traditional meaning of the word. That’s because you don’t receive the death benefit while alive unless your policy allows you to use part of it to pay for end-of-life care. (The accelerated death benefit rider offers this feature.) You’re paying premiums so that your heirs can have an asset: the death benefit.

Since premiums are typically low and death benefits typically very high, life insurance is a great way to leave money for your family if you’re concerned that your estate may not suffice.

When life insurance does go through probate

When you write a will, you’re creating a legal document that distributes the assets in your estate. The life insurance death benefit is not intended to be part of your estate because it is payable on death – it goes directly to the beneficiaries in your policy when you die.

(Your life insurance has both primary beneficiaries, who get paid first, and contingent beneficiaries, who get paid if the primary beneficiaries are no longer alive or can’t be located.)