Estate planning typically involves drawing up numerous documents with the most well-known being the last will and testament. After a testator dies, a North Carolina probate court will oversee the transfer of assets to beneficiaries named in the will. Not all estates have significant assets, so planners may purchase a life insurance policy. Such a policy pays a stipulated sum of money to the named beneficiaries.

Life insurance and beneficiaries

Filing a claim with a life insurance company does not require any probate-related asset transfers. Instead, the beneficiaries file the appropriate claim with the insurance company. Typically, the beneficiary completes the insurance company’s required form and submits it along with a death certificate. If all is in order, the insurance company should process the claim.

A lump sum payment reflects the typical way the life insurance company pays beneficiaries. If the deceased purchased a $200,000 policy, the life insurance company would make a single $200,000 payment to the beneficiary. However, there are other ways to disperse life insurance.

Payment variations

During the estate planning process, the estate planner may review other ways to distribute life insurance payments. For example, the estate planner may worry about a beneficiary’s ability to manage his or her money. So the death benefit could be put in an interest-bearing account, leaving the beneficiary with a monthly payment.

A retained asset account involves putting the money into an interest-bearing account, but the beneficiary could write checks as necessary. A lifetime annuity pays a monthly amount throughout the beneficiary’s life with the payment determined by the beneficiary’s age. A fixed-period annuity is similar, but the payments occur over a set time instead of the beneficiary’s lifetime.

Life insurance policies can pay death benefits in different ways. The policyholder could review different options when taking part in estate planning.