Life Insurance as a Nonprobate Asset
Life insurance policies are typically known as "nonprobate" assets. "Nonprobate" means they go directly to another person when you die, instead of being passed via your will and therefore supervised by the probate court. Life insurance is considered a nonprobate asset because the court sees it as a contract between you and the insurance company: You pay premiums in exchange for the insurance company giving the policy's benefits to your beneficiaries when you die, according to the American Bar Association. Like all nonprobate assets, life insurance does not have to be included in your will.
Life Insurance Beneficiaries
When you purchase a life insurance policy, the policy includes a section in which you should list your beneficiary or beneficiaries, along with the percentage of the policy proceeds that person should receive. Your life insurance policy beneficiaries may be the same people you listed as beneficiaries in your will, or they may be different people or charities. These beneficiaries will receive the proceeds from your life insurance policy as soon as they notify the life insurance company that you have passed. In this case, you may wish to list your life insurance policy information in your will to make it easier for your beneficiaries to find the policy.
The Estate as Beneficiary
If you list your estate as the beneficiary of your life insurance policy, the proceeds from the policy will be paid to your estate. Because they belong to your estate, they will go through probate and be distributed according to the instructions in your will. If the estate is the beneficiary of your life insurance policy, you may wish to mention your life insurance policy information in your will so that your executor or personal representative can find the policy and include it when she distributes your estate to your beneficiaries.
What Listing Your Policy Does Not Do
Although you may wish to mention your life insurance policy information in your will for your executor's or beneficiaries' benefit, you cannot use your will to change the beneficiaries of the life insurance policy. You may, however, make the policy payable to your estate and then leave one or more beneficiaries the exact amount of the policy. The drawback to this method, however, is that your beneficiaries will have to wait until the estate is probated to receive their share of the proceeds, which may take months, according to the American Bar Association.