Do I need a will if I have life insurance?

It never hurts to have an added layer of protection in case the worst happens. Even though they’re both loosely linked, having a will and having a life insurance policy are separate things to consider, however, they certainly both complement each other.

In this guide, we'll look at the main differences between a life insurance policy and a will as well as why having both can help your loved ones through the worst.

What is a will?

A will is a legal document that outlines your wishes regarding the distribution of your assets, the care of any dependants, and other important matters after your death. It allows you to specify who will inherit your property, appoint guardians for any minor children, and designate an executor to handle your estate.

There’s a surprisingly high number of people in the UK who are at risk of inheritance complications simply because they don’t have a will in place.

In short, a will can:

• Specify who inherits your money, property and possessions after you die.
   

• Name guardians for your minor children if you pass away.
   

• Designate someone to manage your estate and carry out your wishes.
   

• Avoid family disputes by clearly outlining your intentions.
   

• Simplify the legal process for your loved ones after you’re gone.

Did you know: Non-married partners are normally excluded automatically from inheriting anything in England and Wales if a loved one dies without a will? [1]

Should I make a will if I already have life insurance?

It’s a smart move to have both in place. In some cases, the money from your life insurance policy may not be enough and won't include any assets that would be in a will.

Writing a will has never been easier, and with plenty of online will-writing services on the market, you can have a will written in as little as 15 minutes. It’s also a lot cheaper than you may think, with specialist online services being much cheaper than going through a solicitor.

If you apply, you’ll be asked some basic questions, including whether you have a partner, if you have any children or if you own your home.

Cavendish Online is proud to have partnered with Farewill, the UK's #1 online will writing service. You can eitherset up your will online or request a call to go through the process with a friendly Farewill Specialist.

Does a will override life insurance beneficiaries​?

A will cannot usually override or change a life insurance beneficiary. This means that the named beneficiary on a life insurance policy will likely receive the policy’s death benefit directly, regardless of any instructions or claims made in a will.

It's crucial for policyholders to keep their beneficiary designations updated to ensure that their intentions are reflected accurately, as any changes made in a will may not affect the beneficiary chosen in the policy.

If a beneficiary is not named, the payout will typically become part of the estate and will be subject to the probate process, which can delay the distribution of funds to loved ones.

Is my life insurance policy part of my estate?

Your life insurance policy is classed as an asset and therefore will be part of your estate. While life insurance is typically tax-free at the time of payout, it could fall under inheritance  tax if the value of your estate exceeds the threshold (currently £325,000). Any amount that exceeds the threshold will be taxed 40%.

One way to make sure that your policy is exempt from inheritance tax is to write your policy in trust. By doing this, the payout from the policy upon your death will not form part of your estate and therefore will not be subject to inheritance tax.

Learn more about writing your policy in trust

Learn more about inheritance tax planning

What type of policy is right for me?

The two types of life insurance policies you’re most likely to come across are ‘term insurance’ (the more basic form of life insurance) and ‘whole-of-life’.

‘Term’ life insurance runs for a fixed period of time (known as the ‘term’ of your policy) eg. 10, 15 or 25 years. The policy will only pay out if you were to die during the term of the policy. No lump sum is payable once you reach the end of the term.

With a ‘whole-of-life’ insurance, the clue is in the name. Unfortunately, we all die one day, so as this policy is ongoing, it will pay out a lump sum whenever that day comes. Naturally, these policies are typically more expensive than term insurance policies since as long as you keep paying your premiums, the insurer will always have to pay out, whereas you may outlive a term insurance policy.

You can also get joint life insurance which covers two people under one policy. This option can be beneficial for couples and spouses and could work out cheaper than buying separate policies.

If you’re not sure, speak to us, and we can help guide you to what the best option is for you.

At Cavendish Online, we have a wide range of policies from a range of providers that specialise in low cost life insurance for all ages. Speak to the team at Cavendish today to choose a life insurance policy that's right for you.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid

[1] https://www.citizensadvice.org.uk/family/death-and-wills/who-can-inherit-if-there-is-no-will-the-rules-of-intestacy/

Want to find out more?

You can find out more about Farewill and the services they offer, as well as a range of guides and FAQs about wills here.

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