Life Insurance Beneficiary Vs Will: Understanding the Major Differences

Are you planning for your family’s financial security? Then, buying a life insurance policy or writing a will are two very crucial steps. But many people in India confuse the roles they play.

Both tools are essential for ensuring your loved ones get the care after you’re gone. But they work in very different ways. Let’s break it down in a simple, clear way. So you can make informed choices about your financial legacy.

Who is a Life Insurance Beneficiary?

A life insurance beneficiary is the person you name to receive the payout after you die. This could be your spouse, children, parents, or even a friend or a charitable organisation.

Key points to know about life insurance beneficiaries:

• You can nominate one or more people.
• You can decide the percentage of the payout each person receives.
• You can update the nominee anytime during the policy term. 

The insurance company is legally required to pay the claim to the nominee. This is as long as all paperwork is in place.

For example, consider Rajesh, who lives in Bangalore. He buys a ₹10 crore term life insurance policy and names his wife, Meera, as the beneficiary. If Rajesh passes away unexpectedly, Meera will receive the payout directly from the insurance company. 

What do we mean by a Will?

A will is a legal document that outlines how you want your assets to be distributed after your death. For example, your property, bank accounts, jewellery, and investments.

Unlike a life insurance beneficiary, who is tied to a specific policy, a will covers your entire estate. You can use a will to specify who gets what and appoint guardians for minor children. You can even make arrangements for your pets.

There are several types of wills in India, including testamentary wills (the most common), joint wills, conditional wills, and more.

Each type serves a specific purpose, but the main goal is to ensure your wishes are honoured. And your assets are distributed according to your instructions.

Key Differences Between Life Insurance Beneficiary and Will

Let’s break down the major differences in a simple table:
 

Conflicts can arise if the nominee on your life insurance policy and the beneficiary named in your will are different people.

For example, you might name your spouse as the nominee in your term insurance plan. But your will states that your children should receive all your assets, including insurance proceeds.

In India, the nominee is typically considered a trustee. This means they receive the payout but may be expected to distribute it according to the will or legal heirs.

However, if there is a clear contradiction, the matter may end up in court. The final decision could depend on the specifics of your case and prevailing legal interpretations.

To avoid such conflicts, it’s best to keep your nominations and your will aligned and updated as your circumstances change.

Can You Change a Nominee or Update a Will?

Yes, both can be updated as your life changes.

Changing a Life Insurance Nominee

You can change your nominee at any time by filling out a nomination change form with your insurer. This process is straightforward and can be done online or at your insurer’s branch.

Always obtain written confirmation of the change from the insurer to make sure your wishes are recorded.

Updating a Will

You can update your will by creating a codicil (an amendment) or drafting a new will altogether. The process involves signing the document in the presence of two witnesses who are not beneficiaries.

You may also notarise and register your will for added legal protection. Keeping your will up to date ensures it reflects your current wishes and helps avoid disputes among heirs.

Final Thoughts

Both a life insurance beneficiary and a will play vital roles in securing your family’s future. But they serve different purposes. A life insurance beneficiary ensures a quick, direct payout to the person you choose. A will provide a comprehensive plan for distributing your entire estate.

Reviewing and updating both your nominations and your will regularly can help prevent conflicts. And ensure your loved ones are cared for as you intend. Consider consulting a legal or financial expert to guide you through the process and ensure the best approach.