19-07-2022 |
Financial benefits from assets and investments should reach the right hands after your life. If you leave a legacy behind, it should certainly serve the right purpose. We have beneficiaries defined for every type of financial investment and estate planning. Will and life insurance plans in India serve two different purposes. You can decide on the beneficiaries for the same based on the family's financial obligations and other liabilities. This article explains everything you need to know about life insurance beneficiary vs will.
Before we get started, let us understand what life insurance and will beneficiary mean.
What is a life insurance beneficiary?
The beneficiary or nominee in a life insurance policy is the person the policyholder names to receive the death benefit upon the death of the insured. This financial safety net offers a sum assured to the selected beneficiaries in case of your death. The death benefit is paid directly to the nominee, bypassing the legal process of probate that can delay the distribution of assets. You can name relatives, friends, or charities as beneficiaries. Life insurance policies are straightforward; you decide who receives the funds and how much. You are also allowed to choose multiple beneficiaries and decide how the benefit should be divided, allowing customisation of your financial legacy based on the needs of your loved ones.
What is a will beneficiary?
The beneficiary under a will is the person to whom the property or assets of the deceased are to be given. It can be funds, real estate, personal effects, or other assets that are subject to probate. This will outline how the estate shall be divided among the beneficiaries after all debts owed and relevant taxes are paid. Unlike life insurance, assets distributed by a will must go through the probate process, which might be a lengthy process and involve litigation. Distribution is handled by an executor who oversees the probate and ensures the estate is settled according to the will's instructions.
For example, when you purchase our Tata AIA life insurance policy, you can receive the death benefit from the policy or an add-on rider# as a lump sum, regular income, or a combination of the lump sum and regular income.
Difference between will and life insurance beneficiary
The following table highlights the difference between will and life insurance beneficiary
Feature |
Life insurance beneficiary |
Will beneficiary |
Definition |
A person who receives the death benefit from a life insurance policy. |
A person named in a ‘Will’ to receive assets as the heir. |
Probate |
The proceeds do not go through probate, hence faster distribution. |
Assets are subject to the probate process, which may be time-consuming and require litigation. |
Aim |
Helps with financial assistance to the beneficiaries in case of the insured's death. |
Disburses the individual's assets as per their preferences. |
Duration |
Payments are usually paid out quickly after the claim has been approved. |
Takes months or even years due to probate and legal proceedings. |
Dispersion Process |
Direct payment from the insurance company to the beneficiary. |
Distribution is done through an executor who oversees the probate process and ensures the estate is being settled in accordance with the will. |
A life insurance beneficiary and a will beneficiary both receive assets after a person’s death. However, a life insurance beneficiary gets the death benefit from a life insurance policy, while a beneficiary under a will receives property or assets as mentioned in the will. The amount from a life insurance policy is usually paid directly to the nominee and does not go through the legal process of probate, so the payment is made comparatively fast. A will and a life insurance policy can work together to provide financial support to your loved ones in your absence. Both are important parts of an estate plan but function separately.
Can a will change a life insurance beneficiary?
No, a will cannot change a life insurance beneficiary. Life insurance is a legal contract between the policyholder and the insurance company and is independent of any will. The named beneficiary has a legal claim to the death benefit regardless of any provisions within any will. However, if no beneficiary is named or the beneficiary dies prior to the insured without naming a contingent beneficiary, it may follow the will.
Do I need a will if I have life insurance?
Yes, you need a will to help distribute your assets to the relevant family members or organisations. A life insurance plan will provide the decided sum assured to the beneficiary in the event of the unexpected demise of the policyholder. However, it does not define how the estate of any individual can be distributed.
Can the will and the life insurance beneficiary be the same?
Yes, the life insurance beneficiaries and will beneficiaries can be the same. It depends on the individual's interests and family financial liabilities and obligations.
Conclusion
Both life insurance beneficiaries and a will are important for securing the financial future of your family, yet they serve different purposes. A life insurance policy provides a direct payout to the nominee, ensuring immediate financial support after the demise of the policyholder. On the other hand, a ‘will’ distributes personal assets and property through a legal process. Life insurance is beneficial and will provide timely financial support to your loved ones and the management of the estate in keeping with your desires.
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