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Life Insurance Beneficiary Vs Will

Life insurance offers you peace of mind, knowing that you have set up a backup for your loved ones to protect them financially in the future even if you are no longer around. Various components should be included in your overall financial planning to make sure that all your goals be fulfilled.

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There is one such element that many people do not think about: Who is a Beneficiary? Can a will change a life insurance beneficiary? When it becomes part of your estate? Understand the difference between appointed beneficiaries in a will and a life policy. 

What is a Life Insurance Beneficiary?  

A life insurance plan provides financial help to the policyholder’s heirs in case of his/her unfortunate demise. However, the heirs have to be appointed by the policyholder to avoid any kind of confusion. The appointed heir is called a life policy nominee or beneficiary. The policy beneficiary can be any individual whom the life assured trusts. 

In simple words, a life insurance beneficiary is a person you are entitled to inherit the profits from your life insurance policy after you pass away

How do Life Insurance Beneficiaries Work?

If you pass away with an active life insurance, then the beneficiary you appointed on the policy will receive all the death benefits of the policy. A beneficiary can be one individual or entity or it can be multiple numbers of individuals.

Policyholders have the option to change the appointed nominee anytime if required. If your nominee is minor, then you are required to assign a custodian. The minor will be able to receive all the policy benefits after he/she turns 18. Always ensure to provide your beneficiary with the documents of life policy so he/she can claim the death benefit when needed. 

Life Insurance Beneficiary Rules 

There are no such rules regarding whom you can choose your life policy’s beneficiary. It can be any individual from your family, friends, relatives, or someone who works with you. However, the insurers mostly prefer that your beneficiary chosen should be from your immediate family. Else, a legal dispute can take place between the nominee and the family of the policyholder. However, there is also a legal option to avoid these situations. If you decide your friend or anyone who is not your immediate family member as a nominee, then you can easily make that person an heir in your will. 

The government of India has introduced the concept of a beneficial nominee in 2015 to ensure that the legal successions of the life assured cannot claim the death benefit unless they are designated as the beneficiaries in your policy. 

Is Life Insurance Part of an Estate After Death? 

It depends on whether the life policy had a surviving assigned beneficiary at the time of the demise of the policy owner. Normally, death benefits from life insurance are involved in the estate of the policy’s owner, irrespective of who is paying the premium or appointed beneficiary. 

Life Insurance Beneficiary Vs Will

As we have discussed the term ‘beneficiary’, but it is very important to understand that all beneficiaries are not the same. The beneficiary of a life policy is a very different term from the beneficiary of a will. Let’s discuss in detail: 

A life insurance beneficiary will receive the amount from the life policy after the demise of the policyholder. A will, on the other hand, is an estate planning instrument that allows one to instruct how assets present in your estate should be distributed or administered or can say passed on to others. If you fail to prepare a will about your estate, then the decision is in the hands of state officials or judges. In order to be sure completely, consider having your will prepared by estates and trust attorneys. There are number of benefits of making a will: 

  • Will help you in deciding who will receive your assets, and how much one can get. 

  • You can keep your assets out of the hands of individuals you do not want to have them such as estrange relative 

  • You can also plan to save your estate amount on taxes. 

Does my Life Insurance Need to have the Same Beneficiary in my Will? 

No. The beneficiary of your will and the life insurance policy does not need to be the same individual. One of the exceptions to this thumb rule is that if you are living in a property state, and you are married, your partner could be eligible for both the assets in the estate as well as any death benefit from the policy. 

If I have Life Insurance do, I Need a Will? 

Yes, you need a will, even if you have a life insurance policy with an appointed beneficiary. Wills are basically unique tools with different objectives. A will helps you to instruct those who you leave behind as to how the assets should be distributed in your estate. They are an estate planning tool that assists your loved ones and courts. 

Wrapping It Up!

Life insurance is a smart way to protect your loved ones in case of your absence. Understanding the role of a beneficiary in your life insurance policy helps ensure that you have financial backup to secure them properly. So those you are trying to protect actually get secured in this way.

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