Is Life Insurance Part of an Estate Plan?

by Bestow Team | September 06, 2022

4 Minute Read

Is life insurance part of an estate plan? It can be. Naming your life insurance beneficiary and estate planning often go hand in hand. 

Estate planning is more involved than simply writing a will. The process can be complex and feel overwhelming, but it is important. There are a few reasons why you might consider consulting with an inheritance tax professional, financial advisor, or attorney as you take inventory of your assets and designate beneficiaries. 

Is Life Insurance Included in an Estate Plan?

If you were to pass away, what would happen to everything you own? An estate plan is essentially a documented guideline of what you want to happen with your assets should you die or become incapacitated. The process of taking inventory of everything you own and naming beneficiaries can feel overwhelming. Still, the alternative of having no plan is not ideal.

Here are some items you might want to consider including in your estate. If you are working with an estate lawyer (which is recommended), you can use this list as a jumping-off point:

  • Letter of Intent
  • Beneficiary and Guardianship Designations
  • Power of Attorney (both health care and durable)
  • Will and/or Trust
  • Life Insurance, Retirement Plans, and Annuities 

Both term life insurance and permanent life insurance provide a death benefit to your beneficiaries if you pass away, which could be a part of your estate plan. Life insurance payouts are typically delivered in a tax-free, lump-sum payment, and could be used to cover estate tax, left behind debts, and other final expenses. 

Is Life Insurance Considered an Inheritance?

Let’s dive into the definition of the term inheritance. Inheritance describes the assets a person passes down to an heir (or heirs) when they die. It can include cash, stocks, bonds, and other tangible assets. Inheritance can also include property, vehicles, jewelry, artwork, and heirlooms.

Life insurance is not considered an inheritance and a beneficiary is not defined as an heir. When you buy life insurance, you will be asked to choose a beneficiary and you can name more than one. Beneficiary options can include family members, a spouse or domestic partner, or a trust.

Who Gets the Life Insurance Payout If the Beneficiary is Deceased?

When you buy life insurance, you are likely thinking of your loved ones. If anything were to happen to you, life insurance can help provide some financial protection for the people who depend on you. When you purchase your policy, you will be prompted to formally name your beneficiaries, the people who would receive the death benefit if you were to pass away with the policy in force.

If landing on one single primary beneficiary seems difficult (like when siblings ask their mom to name a favorite child — impossible), don’t worry. You can name more than one beneficiary to your life insurance policy.

Naming both a primary beneficiary and contingent beneficiary (also known as a secondary beneficiary) is a great way to ensure your death benefit goes to an intended recipient if anything were to happen to you. 

Primary beneficiaries are the initial people you want to receive a life insurance payout if you die. Secondary beneficiaries are, simply put, the next in line. If tragedy were to strike and your first beneficiary passed away before you or with you, designating a secondary beneficiary would offer some peace of mind in knowing that your policy would still benefit someone you care about. 

Fun life insurance fact: you can name multiple primary or contingent beneficiaries. 

Can an Estate Be the Beneficiary of a Life Insurance Policy?

While you may be able to name an estate as a life insurance beneficiary with some life insurance companies, there are other more commonly practiced options. You could consider naming a trust as a beneficiary. A trust is a legal arrangement with a grantor, beneficiary, and a trustee appointed by an estate attorney. 

Term Life Insurance Can Help with Future Planning

Term life insurance can help offer some financial protection for your loved ones. Bestow makes no-medical exam life insurance quick, easy, and 100% online. The term life insurance application takes minutes to complete, and everyone who applies gets a same-day decision (no waiting and wondering).

Start with a free instant quote to get an idea of what your premiums might look like. With rates from $11 per month, term life insurance is likely more affordable than you think. You can apply, select your policy term, choose your coverage amount, and name your beneficiaries all in one day (upon approval). 

Key Takeaways

  • If you have questions about estate planning, it’s best to consult a professional, such as an attorney or financial planner.

Bestow does not give tax or legal advice. The information provided is not intended to offer any tax, legal or financial advice. It is always a good idea to consult your tax, legal and financial advisors regarding your specific situation.