Updated November 13, 2020|8 min read
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The life insurance death benefit is an income replacement for your loved ones when you die. People usually designate their life insurance death benefit for their human dependents, like their children or spouse. But what if you want to ensure the safety and protection of your furry children?
More than half of U.S. households (about 68 million) have pets, and pet ownership continued to increase in 2020, according to Packaged Facts. However, you technically can’t name your pet as your life insurance beneficiary — the recipient of the death benefit needs a bank account to file a death benefit claim, which your pet doesn’t have (no matter how smart they are). But there are steps you can take through your life insurance policy to make sure that your favorite non-humans are protected if you die.
You can’t list your pet as a life insurance beneficiary, but you can list a caretaker or guardian of your pet as the beneficiary
A pet trust that your life insurance policy pays into would ensure that the funds you’ve left behind for your pet are used according to your wishes
It’s important to leave behind a detailed plan about how you would like your pet to be taken care of and what expenses the life insurance funds are going towards
When you add together food, veterinary bills, and other miscellaneous expenses, having a pet can get pretty expensive. Large dogs can cost upwards of $2,000 a year, while smaller pets like a rabbit might be less costly and cost under $1,000 annually. Over the course of a pet’s lifetime, they can cost tens of thousands of dollars, not including emergency expenses.
Do you need financial assistance in place for your pet if you die unexpectedly? Well, if you want to ensure your furry friend’s health and safety when you’re no longer around, you might. And if the cost of your pet’s care is going to fall on the shoulders of your human loved ones, then you want to make certain that they won’t be burdened or even unable to keep up with the expenses.
The life insurance death benefit is paid out to the policy’s beneficiary — which you determine when you sign your policy’s papers (but can update at a later time). Because your pet can’t partake in the necessary processes that are required to accept the death benefit — such as opening a bank account, signing legal documents, or filing a death benefit claim — you won’t be able to list them as the recipient of the life insurance death benefit.
Basically, your policy’s beneficiary needs to be a human or a trust or charitable organization managed by a human. But you can list someone to whom you plan on assigning guardianship of your pet as your policy’s beneficiary. Naming a guardian or caregiver for your pet is an important step to pet ownership. Failing to do so can result in your dog or cat ending up in a shelter or without basic essentials.
The person on whom you plan to bestow responsibility for your pet can receive the death benefit on the animal’s behalf. Likely, your pet’s caretaker would need funds for food, medicine, veterinary care, and more. You can leave behind instructions for how much of the death benefit you’d like to go towards these expenses — if not all — and how you’d like the funds to be allocated.
But what about your other dependents? You might want to cover the expenses of your child’s college tuition alongside your pup’s vet bills. You can name more than one beneficiary and also designate what percent of the death benefit they’ll get in your policy. So if you want to set aside 70% of the death benefit for your spouse and children and 30% of the death benefit for the caretaker of your pets, then you can spell this out in your policy so that the money is paid out per your wishes.
It’s important to be absolutely clear about how you’d like the death benefit to be split up in your life insurance policy, otherwise the death benefit will be split evenly amongst your beneficiaries.
Your beneficiaries will likely receive the death benefit as a tax-free lump sum, which they can use according to their needs. If you have clear instructions as to how the death benefit should be used to care for your pet, make sure to spell that out for the caregiver.
With a lump sum death benefit payout, there’s minimal oversight of how the money is spent after it’s dispersed. Another option to ensure your pets actually get the money you’ve intended for them is to set up a trust that the life insurance death benefit pays into. A trust is a legally binding financial plan for what happens with your money after you die. Like a last will and testament, you can designate how and for what the money can be used.
There are two types of trusts you can choose from:
An irrevocable life insurance trust, which has some tax advantages but can’t be modified
A revocable trust, which can be modified but doesn’t have tax advantages
Setting up a life insurance trust requires a bit of planning. You can’t use your policy to create a new trust, but you can set up a trust before you purchase your policy, and then list the trust as the policy’s beneficiary. When you’re setting up the trust, you’ll also want to designate a trustee to oversee that the dispersed money is spent according to your wishes. Trusts have the added benefit of financial and legal oversight to ensure that the funds are being spent according to your designations.
Trusts for your human dependents and non-human dependents can be kept separate by making use of a revocable or irrevocable pet trust, which designates money specifically for the care of your animal. Similarly to a straightforward death benefit payout, you could assign both trusts as the beneficiary and list what percent of the death benefit should go to each trust. Because your pet won’t be able to accept and use the money themselves, you’ll once again need to establish a caretaker for them.
Every state and the District of Columbia have laws in place regarding pet trusts. Here is how long a pet trust lasts in every state:
|STATE||PET TRUST LAW|
|Alabama||Trust terminates when pet dies|
|Alaska||Trust terminates when pet dies or if 21 years have passed, whichever occurs first|
|Arizona||Trust terminates when pet dies|
|Arkansas||Trust terminates when pet dies|
|California||Trust terminates when pet dies unless otherwise specified in the trust|
|Colorado||Trust terminates when pet dies unless otherwise specified in the trust|
|Connecticut||Trust terminates when pet dies. A guardian for the pet, or "trust protector", must be assigned in the trust|
|Delaware||Trust terminates when pet dies|
|District of Columbia||Trust terminates when pet dies|
|Florida||Trust terminates when pet dies|
|Georgia||Trust terminates when pet dies|
|Hawaii||Trust terminates when pet dies|
|Idaho||A trust for a pet can be created under a "purpose trust", which is a trust that is established when there is no beneficiary|
|Illinois||Trust terminates when pet dies|
|Indiana||Trust terminates when pet dies|
|Iowa||Trust terminates when pet dies|
|Kansas||Trust terminates when pet dies|
|Kentucky||Trust terminates when pet dies|
|Louisiana||Trust terminates when pet dies|
|Maine||Trust terminates when pet dies|
|Maryland||Trust terminates when pet dies|
|Massachusetts||Trust terminates when pet dies unless otherwise specified in the trust|
|Michigan||Trust terminates when pet dies or if 21 years have passed, whichever occurs first|
|Minnesota||Trust terminates when pet dies or if 90 years have passed, whichever occurs first|
|Mississippi||Trust terminates when pet dies|
|Missouri||Trust terminates when pet dies|
|Montana||Trust terminates when pet dies or if 21 years have passed, whichever occurs first|
|Nebraska||Trust terminates when pet dies|
|Nevada||Trust terminates when pet dies|
|New Hampshire||Trust terminates when pet dies|
|New Jersey||Trust terminates when pet dies or if 21 years have passed, whichever occurs first|
|New Mexico||Trust terminates when pet dies|
|New York||Trust terminates when pet dies|
|North Carolina||Trust terminates when pet dies|
|North Dakota||Trust terminates when pet dies|
|Ohio||Trust terminates when pet dies|
|Oklahoma||Trust terminates when pet dies|
|Oregon||Trust terminates when pet dies|
|Pennsylvania||Trust terminates when pet dies|
|Rhode Island||Trust terminates when pet dies|
|South Carolina||Trust terminates when pet dies|
|South Dakota||Trust terminates when pet dies|
|Tennessee||Trust terminates when pet dies or if 90 years have passed, whichever occurs first|
|Texas||Trust terminates when pet dies|
|Utah||Trust terminates when pet dies|
|Vermont||Trust terminates when pet dies|
|Virginia||Trust terminates when pet dies|
|Washington||Trust terminates when pet dies or if 150 years have passed, whichever occurs first|
|West Virginia||Trust terminates when pet dies|
|Wisconsin||An "honorary trust" can be established if there is no human beneficiary|
|Wyoming||Trust terminates when pet dies|
Information courtesy of the ASPCA.
If you have multiple pets listed under your pet trust, then the trust will terminate once the last remaining pet dies.
You should work with an attorney experienced in pet trust laws when setting up a trust for your pet to ensure that your furry friend is well taken care of.
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Whether you are protecting your pet’s well-being through a life insurance trust or the life insurance death benefit, you’ll need to nominate a guardian to accept the funds and take care of your pet. This should obviously be someone you trust — but it’s also important that it’s someone willing to take on the job. Make sure to speak to your pet’s prospective guardian before listing them in your life insurance policy or trust.
And remember, life happens. Your life insurance policy allows you to list a primary beneficiary and a contingent beneficiary, meaning the individual who gets the death benefit if the primary beneficiary is no longer alive to do so. Prepare for the unexpected by listing a backup guardian in your life policy or life insurance trust.
To secure the optimal care of your pet after you die, there are a few other clarifications you’ll need to make in your life insurance policy or trust:
Any identifying methods for your pet, such as a microchip. This helps prevent fraud
Typical care provided to your pet
Inspection protocols for your trustee to ensure your pet’s guardian is using funds in accordance with your wishes
Lay out how much of the funds go toward each expense
Lay out how the caregiver should receive the funds
What should happen with the remaining funds once the pet dies
Burial plans for your pet
While these plans can be laid out in a trust, you will want to specify your wishes directly to the pet’s assigned guardian if they will receive the funds directly from the life insurance death benefit.
Burial plans for your pet are important to clarify in your life insurance policy or trust. And some people are understandably so concerned about their pet’s wellbeing when they’re gone that they’d prefer their pet be euthanized instead of put into another’s care.
However, while you can put such a request in your will, the legal system will rarely allow it, especially if your pet is young and healthy. As hard as it may be to imagine your pet’s life without you, it’s important to find someone you can trust to care for them.
Insurance for your pet is different than naming your pet as your life insurance policy’s beneficiary.
Pet insurance, like health insurance for humans, reimburses you for expenses when something bad and unexpected happens to your animal. It can help you save on vet bills, and you can go to any vet you want. Pet insurance provides peace of mind when it comes to your pet's health and your budget.
There’s also pet life insurance, which essentially pays out money to the owner if the pet dies. The average family pet does not need life insurance, but there are occasions (for example, show dogs) when a life insurance policy makes sense.
While setting up a pet trust requires a little bit more planning than a simple life insurance death benefit payout, it might be worth the extra work to ensure the proper care of your pet. The life insurance death benefit offers more flexibility in how it can be utilized, while the money from a trust must be used as you specified.
If your pet requires specific veterinary care or a particular type of food, you can be assured that the trust money will go towards that. A trust, whether it's for pets or not, can be a very important part of an estate plan.
Read our guide to estate planning.
No, a pet can’t receive a life insurance death benefit. Instead, you can name a caretaker you trust as your policy’s beneficiary who can use the money to take care of your pet.
Your life insurance beneficiary can be a family member, a business partner, a charitable organization, a legal entity like a trust, or your estate. You cannot name a pet as a life insurance beneficiary, and you should avoid naming a minor child, too.
Without a plan, the best-case scenario is they will go to a close friend or relative. The worst-case scenario – which can be easily avoided with a will, pet trust, and estate plan – is your pet could end up in a shelter or with someone who isn’t able to care for them properly.
Life insurance terminology doesn't have to be confusing. Here are definitions of the most common terms and phrases you'll find in a policy.
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