Do you need a Will if you have life insurance?

WHAT IS LIFE INSURANCE?

Life insurance is a contract you will set up with your insurance company where you pay monthly or yearly instalments to your life insurance policy and in exchange your insurance company will pay out an agreed amount to your beneficiaries upon your death.

WHAT IS A WILL?

A Will is a legally binding document which dictates how you wish your belongings to be divided after you die and can stipulate who you wish to care for any minor children or pets.

DO I NEED A WILL IF I HAVE LIFE INSURANCE?

You should always have a Will, even if you have a life insurance policy you should still have a valid and legally binding Will in place. A life insurance policy can ensure some financial stability for your beneficiaries, but it cannot help with how your assets should be distributed once you are gone.

Dying without a Will, known as dying intestate, can put a lot of stress and pressure on your family. It can make the process of winding up your estate far lengthier and more costly, meaning more debts to recover from your estate and less money for your loved ones.

Life insurance can prove to be very helpful and can provide you with a lot of comfort knowing that those you care about will have money to fall back on if you were to pass, but it should never be something you have in place of a Will.

DO I NEED TO NAME BENEFICIARIES ON MY LIFE INSURANCE POLICY?

You do not need to have named beneficiaries on your life insurance policy, however, often this is the preferred option. If you do not have any named beneficiaries, then your life insurance shall be paid into your estate and form part of it. That way it will be divided in accordance with your Will as it is now part of your estate.

Many people choose to have named beneficiaries because paying out a life insurance policy is less timely than winding up an estate. That way, those named will have access to the funds more quickly than those named in their Will. This is not a reason not to have a Will, more a reason to have both and stipulate specific beneficiaries on each.

DO MY BENEFICIARIES ON MY LIFE INSURANCE HAVE TO BE THE SAME AS MY WILL?

You can choose whoever you want to be the specified beneficiaries of your life insurance policy. It is a common misconception that these beneficiaries must be your spouse, child or someone closely related to you, but this is false and your beneficiaries can in fact be anyone.

Scotland’s law of intestacy lends certain rights to spouses, civil partners and children, meaning that they have a claim to the estate of a deceased person. Therefore, they can contest a Will so as to get what the law entitles them to. There are no such rules with life insurance policies and so long as your policy does not form part of your estate and has named beneficiaries, those beneficiaries can be anyone.

DO I NEED TO SPECIFY MY LIFE INSURANCE POLICY IN MY WILL?

If you have named beneficiaries in your policy, then this does not need to be mentioned in the Will. Alternatively, if you wish to change the beneficiaries on your policy this cannot be done so by writing it into the Will. If the Will contradicted the policy, the policy would always trump the Will.

If you have not named anyone to be a beneficiary on your life insurance policy, then you can have it written into your Will that the money from that policy goes to specific beneficiaries. If you wish your whole estate to go to certain people, then you do not have to specify the insurance policy, it will simply become part of your estate and be divided amongst the beneficiaries you have named to receive your whole, or percentages of your estate.

A WILL OR LIFE INSURANCE?

It is recommended that everyone should have a Will, regardless of what you have in your estate. Life insurance can offer financial stability to your loved ones, but a Will is vital in dividing your estate and minimising the risk of additional time, cost and problems when it comes to distributing your estate after you die. It is completely your choice if you wish to have both, but it is always recommended that you have a legally binding Will.