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Leaving a legacy behind is something that almost everyone dreams of at some point in their lives. A will helps you do this. It includes how your wealth and assets will be passed on, ensuring the financial security of your loved ones. But what about your term insurance?
Many people are unsure whether it should be part of their will. Since a term plan directly provides financial support to your chosen nominee, understanding how it fits within your estate planning is essential.
Let us explore whether or not including your term insurance benefits in your will affects your legacy and your family’s financial security.
Key Takeaways
A will ensures that your estate is distributed as per your wishes after your lifetime
Term insurance benefits reach the nominee directly, independent of your will
A will and term insurance serve different but complementary financial purposes
Including insurance in a will depends on your family’s specific circumstances
Estate planning should include both will writing and insurance management
What Does a Will Really Mean?
A will is definitely more than just a legal document that reflects your wishes and values. It defines how your assets, properties, and savings will be distributed after your lifetime. Writing a will ensures that the estate planning you have done for your loved ones remains free of any confusion or dispute.
Certain instruments, such as life insurance policies, already have their own built-in mechanisms for transferring benefits. Understanding how your term insurance interacts with your will can help you avoid duplication or legal complexity later.
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What Happens to Term Insurance in Case of the Policyholder’s Unfortunate Passing?
Term insurance serves a specific purpose. It provides the family with financial protection in the unfortunate event of the policyholder’s demise. Once the policyholder passes away during the policy term, the insurer pays the death benefit directly to the nominee mentioned in the policy.
The payout process is straightforward. The nominee submits the required documents to the insurance company, and after verification, the amount is transferred without delay. The most important point to remember is that this process takes place independently of your will.
This means that term insurance benefits do not automatically fall under the control of your executor or legal heirs unless you have specified otherwise. The benefit is designed to reach your nominee quickly so that your beneficiaries are financially supported when they need it most.
What Differentiates a Legal Heir From a Nominee?
When it comes to estate planning, the difference between a nominee and a legal heir stands out as a common source of confusion. A nominee is the person you assign to receive your insurance benefit after your death. It could be your spouse, child, or parent.
A legal heir, on the other hand, is someone who inherits your assets under succession laws. This includes property, bank deposits, and investments. In many cases, people assume that the legal heir automatically becomes the nominee of the insurance payout. However, that is not always correct.
In India, a legal heir gets the insurance benefit only if the same person is also listed as a nominee in the beneficiaries list. In fact, SEBI reports show that only 38% of Indians are aware of the difference between a legal heir and a nominee. This is why it is important to align your nominee selection with your legal heirs and communicate your intentions clearly.
Keeping these two aspects consistent ensures that your term insurance benefits reach the right person without legal delay.
When Should You Include Term Insurance in Your Will?
There are certain situations where including your term insurance in your will may be a good idea. In all the following cases, including term insurance in your will can bring transparency and reduce potential disputes among beneficiaries:
When Your Nominee is a Minor: If your chosen nominee is a child below 18 years, the insurance company will hold the payout until a guardian is appointed. Including clear instructions in your will can help appoint a trusted guardian in advance.
When You Want to Distribute Proceeds Differently: In some cases, you may wish to divide the term insurance benefits among multiple family members. Mentioning this in your will ensures that your intentions are clearly documented and followed accurately.
When You Want Legal Clarity: If your family structure is complex, such as having stepchildren or dependents from previous marriages, adding your insurance details to the will can help avoid misunderstandings.
When You Should Not Include Term Insurance in Your Will?
In regular family situations, you may not need to mention your term insurance in your will. The reason is simple. A term insurance policy already has a nomination system in place, ensuring the benefit reaches your chosen nominee directly.
If your nominee and intended beneficiary are the same person, mentioning the policy in your will might create unnecessary duplication. It can even delay the payout if both documents show different information.
The strength of a term insurance plan lies in its simplicity. The claim process is designed to provide quick support to your family. Keeping the nomination updated in your policy is more effective than listing it again in your will.
Legal and Practical Implications
If there is a mismatch between your will and your insurance nomination, the insurer may hold the claim until the issue is legally resolved. This can delay the much-needed term insurance benefits the beneficiaries may require.
To avoid this, keep your insurer updated whenever you make changes to your will or your nominees. Inform your family members about where your documents are stored and who your nominees are. Inform your family members about where your documents are stored and who your nominees are to avoid unnecessary legal involvement during an already emotional time.
It is also a smart move to consult a financial advisor or estate planner when managing both documents. Professional advice ensures that your will and insurance policy work together effectively.
Did You Know?
In India, there is no tax applicable to the estate inherited through a will.
Source: Indiafillings
Estate Planning Beyond Term Insurance
A will and a term insurance policy are both essential, but they are just parts of a larger financial plan. Term insurance benefits protect your family from the financial constraints that may arise due to income loss. On the other hand, a will defines how your accumulated wealth is distributed upon your passing. When both are aligned thoughtfully, your financial legacy remains strong and purposeful.
Comprehensive planning involves a mix of different tools that secure your family’s future. Some of these include:
Building a secure legacy takes time and thoughtful planning. Here are a few practical steps that can help you manage your estate better:
Keep Nominee Details Updated: Review your term insurance nominations regularly, especially after significant life changes. It can be marriage, the birth of a child, or a change in family structure.
Review Your Will Periodically: Update your will every few years to reflect any new assets, changes in family relationships, or shifting priorities.
Discuss Openly With Your Family: Clear communication helps avoid misunderstandings in the future. Explain your decisions to your family members so they understand your intentions and motivations.
Store Documents Safely: Keep both your will and your insurance policy documents in a secure yet accessible place known to your trusted family members.
Seek Professional Advice: Estate planning and insurance management can be complex. Consulting an advisor helps you align both elements in a legally and financially sound way.
Conclusion
Planning for your family’s financial future is an act of care. A will and a term insurance plan work hand in hand to protect your loved ones. While your will ensures a fair distribution of your assets, term insurance benefits provide them with immediate financial stability.
Including your insurance policy in your will is not always necessary, but ensuring that both align with your intentions is essential. What matters most is clarity, transparency, and timely communication with your loved ones.
At Canara HSBC Life Insurance, we understand that protecting your family is more than a financial decision. It is a promise. Our term insurance plans are designed to help you keep that promise by ensuring your loved ones are always supported with care and dignity.
You can learn more and now even easily purchase term insurance online through our official website.
Glossary
Estate Planning: The process of creating a strategy to manage and distribute assets after one’s death.
SEBI: The Securities and Exchange Board of India, which regulates financial markets and investor interests.
Insurance Management: The ongoing process of maintaining, updating, and aligning your insurance policies.
Child Education Plans: Insurance-based savings plans designed to secure a child’s future education expenses.
Executor: The individual responsible for carrying out the instructions in your will.
FAQs
The insurer pays the death benefit directly to the nominee after verifying documents, ensuring timely financial support.
No, term insurance works independently and transfers benefits directly to the nominee without involving the will.
Conflicts may delay payouts until they are resolved legally, so align both documents carefully.
No, insurance nominations are binding unless legally challenged or changed by the policyholder.
It provides immediate financial security while your will manages the long-term distribution of wealth.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
