What is estate planning and how can life insurance help achieve your goal?

“Life is uncertain. Eat dessert first.” This humorous quote by American writer Ernestine Ulmer highlights the unpredictability of life and the need to enjoy it to the fullest while we can. While this quote brings a smile to our faces, it also reminds us that we need to be prepared for the unexpected. One way to do so is by including life insurance in our estate planning. In India, estate planning is a topic that is often associated with morbidity and avoided due to superstitions and cultural beliefs, uncomfortable to broach. However, it is essential to understand the importance of estate planning and the role that life insurance can play in ensuring that your assets are distributed according to your wishes and that your loved ones are well taken care of.

Contrary to the popular belief, estate planning is not a privilege reserved for the wealthy. It is a process of preparing for the management and distribution of your assets and liabilities in case of your death or incapacity. It is for everyone. Without a proper estate plan, your affairs may be settled by the law, which could result in unwanted consequences for your loved ones, such as higher taxes, legal fees, or disputes.

An important component of estate planning that is often overlooked is life insurance. Life insurance is an important component of estate planning because it provides financial security and liquidity to surviving family members in the event of an unforeseen death. Other assets such as real estate, time deposits, stocks and gold have their advantages, but they cannot replace the financial security and liquidity that life insurance provides. Life insurance ensures that your loved ones receive a substantial payout that can help them maintain their lifestyle and secure their financial future.

Benefits of Life Insurance

Life insurance trumps other assets in estate planning due to its liquidity and tax benefits. Unlike real estate, which can come with legal hassles, stamp duties, capital gains tax, and maintenance expenses, insurance payouts are made promptly and without deductions.

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Moreover, while FDs, stocks, and gold may attract taxation and market volatility, life insurance policies provide tax savings. Additionally, life insurance policies can protect the estate from creditors and liabilities as only named beneficiaries can receive the payout, whereas other assets can be seized or attached by claimants in the event of a dispute or debt.

Furthermore, life insurance can help provide immediate funds to your family members which can be used to replace lost income, cover funeral costs, and pay off any debts. Life insurance plays three main purposes in estate planning. First, it provides death benefits to chosen beneficiaries. Second, it provides liquidity that can be helpful with an estate. Lastly, it allows loved ones to obtain financial support. When you include life insurance in your estate planning, you can rest easy knowing that your loved ones will be well taken care of after your death.

So, take the time to review your options, talk to a financial advisor and create a plan that works best for you and your family.

The author, Nitin Mehta, Chief Customer Officer and Head of Digital Business at Bharti AXA Life Insurance.

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