The key differences between life insurance and a will (and why you need both!)
Guestpost by Willful
A will and a life insurance policy are both important parts of a plan to protect your loved ones after you die. If you have a spouse or children (or both) it’s especially important that you have a will and life insurance policy in place. While they work alongside one another to create a comprehensive plan for your family, there are key differences between the two.
1. Life insurance provides your loved ones with a lump sum of money
Life insurance is a contract between yourself and an insurance company that ensures your assigned beneficiary, usually someone who relies on you for financial support (i.e., your spouse or children), will receive a set sum of money if you were to pass away. Your beneficiary will receive a lump-sum payment that they can use for any purpose, and this sum of money does not get administered through your estate (it falls outside of the assets covered by your will).
2. A will provides your loved ones with a lump sum of money and other assets
While you can leave a specific amount of money to loved ones in your will, a will also covers other assets like property, investments, family heirlooms, memorabilia, jewelry, etc. Everything you own can be distributed to beneficiaries through your will, but the benefit of assigning a beneficiary on your life insurance policy (vs. assigning your estate as the beneficiary) is that they can access the money sooner. If proceeds go through your estate, they may have to wait months to access money you intended them to have.
3. A will allows you to choose guardians for minor children
You might get a life insurance policy to ensure your children are financially supported if you were to pass away, but what if both you and your spouse passed away at the same time? A lump sum of money from your life insurance policy won’t raise your children. While no parent wants to imagine this happening, it’s important to have a plan in place to protect your children from the worst case scenario. That’s why it’s crucial to make a will and name someone you can count on as a guardian to take legal, moral, and financial responsibility for your children. Not naming a guardian in your will can often end in a painful tug-of-war amongst family and friends who all believe they would have been your choice of caretaker.
4. You can donate to charity in your will and life insurance – but in different ways
Life insurance and wills are effective ways of supporting a charity you care about, even when you’re no longer around. There are three ways to donate to a charity through a life insurance policy: taking out a new policy in the name of a charity, naming a charity as the beneficiary for your existing policy, or transferring ownership of an existing policy to a charity. In these instances, the charity will receive the policy proceeds. You can also donate to a charity through your will by naming an organization as a beneficiary – you can choose to leave specific assets or a cash amount (or both). A recent study by Willful found that only 12% of Canadians plan to leave a gift to charity in their will, so if making a will is on your to-do list, remember to include any charities that you’d like to contribute to.
Every adult should have both a life insurance policy and a will. While there are key differences between the two, together they create a strong support system for your loved ones during a difficult time. With online insurance advisors like PolicyAdvisor it’s incredibly easy to find a policy that matches your needs. You can also make a will online from the comfort of your own home with easy-to-use platforms like Willful. While we know that it can be difficult to think about your own mortality, we promise that the peace of mind you’ll gain knowing you have life insurance and a will ready to protect your loved ones will be worth it.
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