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Who Gets the Life Insurance Money?

Life insurance is a really important planning tool, particularly if you have young children. It makes sure that there is an adequate supply of money to take care of them if you're not able to. So, how do those moneys get distributed when the proceeds of a life insurance policy are paid out?


Similar to individual retirement accounts and 401Ks, you get to control the assets rather than a judge. You do this by filling out and maintaining a beneficiary designation form. You would have created this form at the time you bought the life insurance policy to identify who receives the proceeds of your policy. But, it's important to keep this form updated along with any changes in your life and circumstances, to make sure that the life insurance is available to whomever you want to access it if that policy pays out.


If you don't update your beneficiaries, then your policy benefits would get paid into your gross estate, and a judge would determine how that money is distributed, either based on a will or state law. And it would be subject to all the normal processes of court including the ability for creditors to gain access to that money to pay any outstanding debts you have at the time of your death.


The most important thing here is making sure you know who you've designated as beneficiaries, and that you make changes as needed. If this is something you need help with, drop us a note or leave us a comment -- we'd be happy to help you out as best we can.

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