How beneficiaries, estate planning and insurance policies work together

Most people don’t create an estate plan all at once. They name a beneficiary on an account, buy a life insurance policy or create a will after a major life event.

Together, these decisions can help determine who gets your assets and how your wishes are carried out. But because they’re often made years apart, they may not match your current wishes.

That’s why estate planning is more than filling out forms. Beneficiary designations, life insurance policies and estate-planning documents each serve a different purpose, but they should work toward the same goals. Reviewing them together can help keep your plan up to date as life changes.

What is a beneficiary designation?

A beneficiary designation lets you name who will receive certain accounts, assets or insurance benefits when you pass away. You’ll often find beneficiary designations on retirement accounts, life insurance policies and some financial accounts. In many cases, these assets go directly to the named beneficiary without going through probate, a court process used to settle an estate. 

Common types of beneficiary designations

You may already have more beneficiary designations in place than you realize. Here’s where they most commonly show up:

• Payable on death (POD) designations. These apply to bank accounts—sometimes called POD accounts—such as savings and checking accounts, money market savings accounts, and certificates.
• Transfer on death (TOD) designations. These work similarly to POD designations but apply to eligible investment accounts, sometimes called TOD accounts. A TOD designation lets those assets go directly to the beneficiary you name.
• Retirement and IRA accounts. These accounts usually require their own beneficiary forms, separate from other accounts.
• Life insurance policies. When you buy a policy, you name a beneficiary who will receive the death benefit when you pass away.

Naming multiple beneficiaries

Many accounts and policies allow you to name both primary and contingent beneficiaries. A primary beneficiary is first in line to receive the account. A contingent beneficiary serves as a backup and receives it if the primary beneficiary dies before you.

Why are beneficiary designations important?

Beneficiary designations do more than put a name on an account. They help certain accounts and insurance benefits go directly to the people you choose, which may allow some assets to pass outside probate. How quickly funds are paid depends on the account or policy, required documents and whether a claim is disputed.

These designations matter at every stage of life, from your first savings account to retirement, investment and insurance products.

Do beneficiary designations override a will?

In most cases, beneficiary designations take priority over instructions in a will. For example, a will might leave everything equally to two children. But if only one child is named as the beneficiary of a retirement account, that account generally follows the beneficiary designation and plan rules rather than the will. Spousal rights, court orders and other legal requirements may affect the outcome.

That’s why it’s important to review beneficiary designations regularly, especially after major life events such as marriage, divorce, the birth of a child or the death of a beneficiary. Coordinating beneficiaries with a will or trust helps ensure all parts of your plan work together.

How do beneficiary designations fit into an estate plan?

Beneficiary designations are just one part of an estate plan. Depending on your circumstances, an estate plan may include life insurance, a will, a trust or other documents that help carry out your wishes. 

The role of life insurance

Life insurance^{Footnote [1]} plays a different role in an estate plan. While a beneficiary designation identifies who receives an asset, life insurance can help provide money for your loved ones. A policy’s death benefit may be used to:

• replace lost income 
• pay off debts
• cover final expenses
• help your family with everyday expenses

Beyond a will: Other estate-planning documents

A will is often the foundation of an estate plan, but other tools can play important roles, too. These documents can help guide money and healthcare decisions if you can’t make them yourself: 

• Trusts help manage when and how money and property are passed on and may allow certain assets to avoid probate.
• Financial powers of attorney let you choose someone to manage your finances if you’re unable to do so.
• Healthcare directives explain the medical care you want and name someone to make healthcare decisions for you.

When to review your designated beneficiaries

Major life events are a good time to review your beneficiary designations and estate-planning documents. Review your plan after events such as:

• Marriage. You may want to add a new spouse as a beneficiary on existing accounts or policies.
• Divorce. You may need to remove or update a former spouse as a beneficiary.
• Birth or adoption. Your will, trust or beneficiary designations may need to be updated to reflect your growing family.
• Death of a named beneficiary. You may need to select a new beneficiary or update your backup beneficiary information.

Even if no major life event occurs, it’s a good idea to review your beneficiary designations and estate-planning documents from time to time. A quick check can help ensure everything still matches your current goals and works together as intended.

Your beneficiary review checklist

A beneficiary review doesn’t need to be complicated. Looking at your accounts, insurance policies and estate-planning documents together can help you spot problems and make sure everything still supports the same goals. Check the following items:

Questions to ask

• Do these designations still reflect my wishes?
• Has anything changed, such as a marriage, divorce or new family member?
• Does everyone named still make sense for my situation today?
• Do my accounts, policies and estate-planning documents all work together?

Working through these questions can help you spot anything that may need updating. If you find something that doesn’t match, such as an old beneficiary designation or a will that no longer matches your situation, you’ll have a clearer idea of what to update first.

How do you keep your beneficiaries and estate plan aligned?

Estate planning isn’t something you do just once. As your family members, finances and priorities change, your beneficiary designations and estate-planning documents may also need updates. A few simple habits can help keep all parts of your plan on track:

• Review beneficiary designations annually, not just when a major life event happens.
• Revisit them after major life events, such as marriage, divorce, the birth of a child or the death of a beneficiary.
• Keep your will, trust and beneficiary forms organized and easy to find.
• Make sure a trusted family member, executor or advisor knows where to find those records.

These routine checks can help you identify updates that may be needed as life changes.

Putting the pieces of your estate plan together

Beneficiary designations, life insurance policies and estate-planning documents each have a different job. But a strong estate plan brings all these tools together. Regular reviews can help make sure your plan still matches your goals as life changes.

Explore Navy Federal’s estate-planning and beneficiary resources to learn more about beneficiary designations, wills, trusts and life insurance policies. You can also connect with a Navy Federal Investment Services financial advisor^{Footnote [2]} to see how these pieces fit with your financial goals and what products may be available. For legal or tax questions, consider consulting an estate-planning attorney or tax professional.