How Life Insurance Can Help You Plan Your Estate

What is Estate Planning and How Does Life Insurance Fit in?

Estate planning is the process of preserving and distributing your wealth in case of your death or permanent incapacitation. To put it simply, you write down a will that dictates how your savings and investments shall be handled once you are gone. Other aspects of estate planning include setting up trusts, charitable donations, and deciding the custody of your minor children upon your death.

Estate planning should begin the moment you start a new family. If you unexpectedly pass away, a well thought out estate plan will prevent any financial disputes within the family. Of course, life insurance also plays an important role in the process of estate planning. Life insurance provides a financial buffer to your family in your absence. The lumpsum amount your family receives as the death benefit can help them maintain their standard of living without having to dip into your estate savings.

Why is Life Insurance Beneficial for Estate Planning?

The whole point of estate planning is to create generational wealth for your family. Contrary to popular belief, estate planning is not just for the super wealth! Everyone should consider estate planning to safeguard their wealth for their loved ones. However, the safety and stability of your estate can be jeopardised if you do not have life insurance.

Consider this- if you are the primary breadwinner of your family, and you pass away, how will your family maintain their current standard of living? They will have to start digging into your estate savings. This completely negates the point of estate planning, as all the money you saved for your loved ones is being used up just to secure their current lifestyle.

With life insurance, you family will receive a lumpsum amount upon your death. This amount will act as a financial buffer that your family can rely on without having to liquidate their savings.

How to Choose the Right Insurance Policy for Estate Planning

Life insurance payout should be sufficient to financially cover your family for at least a year post your death. Make sure that the sum assured (life insurance payout) is more than enough for your family’s daily needs and lifestyle expenditures. Your loved ones should not have to rely on your hard-earned savings to make ends meet.

It is generally recommended that your life insurance coverage should be ten times your annual income. This amount will be enough to maintain your family’s standard of living, and they will even be able to save a bit of it to further add to your estate.

Maximising the Impact of Life Insurance Payouts

Life insurance can not only help you financially secure your family, but it can also help you grow your wealth during the estate planning process. Some insurance policies, such as Guaranteed Income Plans or Unit Linked Insurance Plans (ULIPs), have an additional maturity benefit that is paid out if you survive until the very end of your term. This means that your family will receive a lumpsum payout both in your absence and while you are still around! This money can be utilized to fulfil your lifelong goals, or you can reinvest it again to further grow its value.

Key Considerations for Estate Planning with Life Insurance

Life insurance payouts can also be used to cover your outstanding debts. Think about what will happen if you pass away without paying off your loans. Your family may end up inherit that debt, further adding to their financial troubles. Your current outstanding debts, loans, and investments, all need to be taken into consideration before purchasing a life insurance policy.

You can also opt to buy a plan that provides additional safeguards in case of critical illnesses. For example, Edelweiss Tokio Life- Zindagi Protect is a term insurance plan that also offers critical illness rider. This rider is triggered if you are diagnosed with any of the critical illnesses covered by your plan. Thanks to this rider, your family will receive the sum assured early and will be protected from any financial hardships while you are ill.

Some plans also offer additional payouts to your family even after the death benefit has been claimed. If you opt for the Family Benefit Option in Edelweiss Tokio Life- Guaranteed Growth Plan, you family will receive the sum assured on your death, plus the plan will remain active without requiring any more premium payments. After the plan reaches maturity (term end), your family will also receive the maturity benefit. This will allow your loved ones to live in financial security without having to depend on their savings/estate.

Neha Panchal - Financial Content Writer

Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.