You decide that it’s time to write a will. You have a fair amount of complex assets, but much of your wealth comes from a life insurance policy. You know that it’s going to pay out when you pass away, so you write into the will that the money should get split evenly between your three children. It seems easy enough, and you assume that covers it.
It doesn’t. The life insurance company does not care about your will. All they care about is the beneficiary designation. That’s the person you picked to get the money when you created the policy. It’s a legally binding document. Moreover, your estate planning doesn’t impact it because “it supersedes your will.”
Say you created the policy and named your spouse as the beneficiary. Your estate plan says that the money goes to your kids, but your policy still names your spouse. Put simply, that money is going to your spouse. Your notations in the will don’t make any difference.
Another way that this plays out is if you just had one child when you created the policy. You named them as the beneficiary. You had your other two children in the years to come and forgot to update the policy. Well, all the money is going to your firstborn child, even if your will says that you want it to get split up between all three of them. The life insurance company just follows the direction of the beneficiary agreement and leaves everything else up to your family.
As you can see, it’s very important to know how all of your estate planning documents interact.