To Whom Will Your World Belong? The Symbiotic Relationship of Estate Planning and Life Insurance

Sarah, a mother of two, found herself in a dilemma when her husband suddenly passed away. He had always taken care of the financial aspects of their lives. Left with two young children, mortgage payments, and a sea of bills, Sarah was overwhelmed. Then, she remembered her husband mentioning their life insurance policy. That policy turned out to be her saving grace, allowing her to settle debts and secure her children's future. Sarah's experience highlights the significant role life insurance plays in estate planning.

Basics of Estate Planning

Estate planning might sound complex, but it’s simply planning ahead for what happens to everything you own after you're no longer around. Let's break it down:

What's in an Estate?

Your estate isn't just fancy properties or lands. It includes everyday things like:

• Your house, maybe even a holiday home.
• Money in bank accounts, savings, or investments.
• Personal things like jewellery, cars, art, and even your favourite book collection.
• Any business you might own or are a part of.

Why Plan Your Estate?

You've worked hard for what you have. Estate planning ensures:

• Your wishes are followed. You decide who gets what.
• Your family is protected. This planning can mean they don't have to worry about money or legal issues during already tough times.

Deciphering Life Insurance for Optimal Estate Planning

Life insurance is not merely a safety net but a pivotal tool in estate planning. Its application varies based on individual needs, making the choice of the right policy essential. Common options include Term, Whole, and Universal Life Insurance, each with its advantages.

Estate planning often pairs life insurance with trusts. This union bypasses probate, speeds up asset distribution, and provides controlled disbursement based on set criteria. It can also protect assets from potential claims or creditors.

Thus, while life insurance is a key player in safeguarding legacies, its synergy with estate planning strategies is what truly maximises its potential, creating a lasting legacy.

Why Life Insurance in Estate Planning is Essential?

Life insurance can be a game-changer for estate planning. When you buy a life insurance policy:

• Death Benefit: The primary advantage of life insurance is the death benefit. It's a sum of money your beneficiaries receive upon the death of the life assured. This amount can significantly support them, especially if you were the main provider.
• Protection: It ensures that family remains financially secure, even if the policyholder is not around. 
• Debt Settlement: If you leave behind loans, like a home mortgage or personal loans, the life insurance payout can handle them. Your family won't be pressured to repay these debts out of pocket.
• Liquidity: Estates often have assets, like homes or land. But selling them takes time. Life insurance offers cash—quickly. This means families can pay urgent bills, like hospital charges or school fees, without selling assets.

How to Select a Beneficiary for your Life Insurance?

It's vital to distinguish between beneficiaries in your Will and those in your Life Insurance policy. Naming someone in your Life Insurance doesn't automatically include them in your Will, and the reverse is true too.

When selecting a beneficiary for your life insurance:

• Consider Responsibilities: Ponder on who'll manage your final expenses. If you're a primary earner, it's common to choose your spouse to shoulder the financial aftermath of your passing.
• Backup Beneficiary: Life is unpredictable. In the UAE, where expatriate families might have extended family back home, it's wise to name an alternate or contingent beneficiary. This ensures coverage if the primary beneficiary predeceases you.
• Holistic Approach: Life Insurance isn't just about immediate financial relief. It aids in transferring business ownership, tackling estate taxes, and can assist with end-of-life care in this region.
• Seek Guidance: The process might feel daunting, but let these factors steer your decisions. Partner with local experts to ensure your choices provide the best protection for your loved ones.

Choose What Fits Your Life and People In It

Taking out Life Insurance can be confusing with so many options. Here's a simple guide to help:

• Your Income: Are you the main breadwinner in your family? If you are, get a policy that gives your family money right away if something were to happen to you. This helps them handle the tough times.
• Medical Bills: We can't always guess our future health needs. But, it is for sure that medical costs keep going up. Life Insurance can help cover surprise medical bills.
• Your Family Size: Think about how many people need your support. This isn't just your wife or husband and kids. It could be business friends or workers too. So, depending on how many people are there, you might want to pick more than one person to get the insurance money or even get more than one policy.

In conclusion, life insurance isn't merely about addressing the uncertainties of life; it's about planning, securing futures, and leaving lasting legacies. For UAE residents, understanding the intertwining of life insurance and estate planning is pivotal. Just like Sarah, having the right life insurance can make all the difference in the world for your loved ones.

Policybazaar UAE – Helping you navigate the wilderness of the insurance world!

By: Nupur Jain