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Life Insurance and Wills



You have drafted a will, which leaves everything you own to your spouse upon your death. But suppose you have life insurance through your place of work. You were working at this place before you met your spouse, so when you were asked to name a beneficiary on your life insurance policy, you named your parents. You actually want your spouse to get the money to help with things like funeral expenses and paying the mortgage after you are dead. Well, no problem, you say: the will says everything goes to your spouse and that has to include the life insurance policy, right?

Wrong. Term life insurance policies like the one you probably receive as a work benefit do not become part of your estate when you die. That means the life insurance proceeds that are probably equal to one or two times your annual salary are not paid to your estate; they are paid to the beneficiary named in the policy. In this case, the money will be paid to your parents, not your spouse.

The fact that term life insurance usually does not get involved in probate proceedings can have benefits and drawbacks. The benefit is that if you named your spouse or partner as a beneficiary, he or she will receive the life insurance proceeds quickly without having to wait for the probate courts to distribute your estate under your will. All that is usually necessary to obtain the proceeds is a certified death certificate and some proof of the beneficiary's identification. The drawback is that if you named beneficiaries on life insurance policies a while ago and have not updated them, you might be surprised as to who will get the life insurance proceeds. Because the life insurance policy is a contract between you and the insurance company to pay the beneficiary upon your death, the proceeds never become part of your estate. It is a sound idea to check and make sure that the named beneficiaries on your life insurance policies have been updated to reflect the changes in your life. A young, single worker often names his or her parents as beneficiaries because the funeral expenses would fall upon them in case of death. This situation changes when you marry or take on a partner. Check your life insurance policies to be sure.