We often work hard for years to build our wealth, from property and investments to savings and more.
But how do we make sure it supports our family even when we are not around? That is where planning comes in.
Apart from making a will or listing assets, term insurance plays an important role in protecting and transferring your wealth with clarity and ease.
What is Term Insurance and Why it Matters for Your Legacy?
Term insurance is a type of life insurance that offers a large sum assured at an affordable cost.
It is designed for a fixed number of years, usually 10, 20, or 30, and provides financial protection to your dependents.
Here is why it matters when you are planning your financial legacy:
● It makes sure your family gets a lump sum if something unexpected happens during the policy term.
● This amount can cover key needs like living expenses, school fees, home loans, or medical costs.
● More importantly, it plays a long-term role — it is not only about protection. It becomes a key part of estate planning by offering ready funds to the next generation.
How Term Insurance Helps Protect and Pass On Wealth?
A thoughtful financial plan does not just protect wealth; it makes sure it is passed on without confusion or stress. A term insurance plan adds real value in that area.
The payout from a term insurance plan gives your loved ones instant liquidity.
This means they do not have to:
● Sell property or gold in a hurry
● Take on loans or borrow money during a difficult time
● Depend on other family members for help
It Covers Ongoing Financial Responsibilities
● Continue children’s education without interruptions
● Pay off existing EMIs, like home or car loans
● Cover monthly bills and household needs
One-Time Investment for High Protection
Many high-net-worth individuals choose single-premium term insurance. This allows them to:
● Pay the entire premium in one go
● Avoid yearly payments or missed deadlines
● Get peace of mind knowing their family is protected for the long term
It is ideal for those with surplus funds who want to easily lock in lifelong coverage. Some insurers simplify the process, especially for those who prefer digital-first convenience.
For instance, your policy can be easily accessed and downloaded from the “My Policies” section if you are covered under Digit Insurance.
Why a Will Must Work Alongside Your Term Insurance?
Making a will is equally important when planning your wealth transfer. It helps ensure that the benefits of your term insurance plan go to the right people in the right way.
Here is how it strengthens your financial legacy:
● A will gives legal clarity on who should receive what, including the insurance payout.
● It prevents confusion or disputes among family members in the future.
● If your will and insurance plan are aligned, it gives you full control over how your assets are shared.
Even if a nominee is mentioned in your policy, the will can guide overall distribution. So, using both together is a smart move.
Aligning Nominees with Your Term Insurance Plan
Many people name a nominee while buying term insurance, but forget to update it later. This small detail can make a big difference.
Who is a Nominee?
A nominee is the person you choose to receive the policy payout. This can be:
● Your spouse
● A parent or sibling
● A child or guardian
Nominee vs Legal Heir
This is where many get confused.
| Nominee | Legal Heir |
| Receives the insurance money first | May have legal rights to the money based on the will or succession laws |
| Acts as a trustee in many cases | Can claim a rightful share through the estate |
So, if your nominee is not your legal heir, or if the details are outdated, it can create complications.
Things to Keep in Mind
● Always align your nominee details with your will.
● Review them after major life events like marriage, birth of a child, or retirement.
● Make sure your family knows who the nominee is and where the policy documents are kept.
Common Estate Planning Mistakes with Term Insurance
Even with the best intentions, a few common gaps can reduce the impact of your term insurance.
Let us look at what to avoid:
- Not Having a Will
It leaves your family with an unclear direction on asset distribution.
2. Outdated Nominee Details
If the nominee is no longer in your close circle, it may cause issues.
3. Inadequate Cover
You need to reassess your sum assured regularly based on income, liabilities, and life stage.
4. Ignoring Liquidity Needs
Assets like property or mutual funds may take time to access, so term insurance fills that gap. Those opting for single premium term insurance often overlook the need to reassess cover after life changes, assuming one-time payment means long-term sufficiency.
- Forgetting Tax and Documentation Needs
It is important to store all records in one place for a smooth claim process.
Planning can spare your family significant time and effort.
Tax Benefits of Term Insurance in Wealth Distribution
Along with peace of mind, term insurance also comes with valuable tax benefits. It makes your wealth transfer smoother and more efficient.
Tax-free Payouts
Under Section 10(10D) of the Income Tax Act, the payout received from a term insurance plan is fully exempt from tax. This means your family receives the entire sum without deductions.
Deductions on the Premium
You can also claim the premiums paid under Section 80C, up to ₹1.5 lakh per year. If you opt for a single premium term insurance, the entire amount paid in one go may also qualify under 80C, subject to certain conditions. These benefits help in:
● Reducing tax liability while you are building your plan
● Ensuring your family gets full financial support without any deductions later
● Managing estate planning in a clean, structured way
Passing on your wealth, apart from leaving behind assets, is about creating clarity, care, and continued support. By combining term insurance, a well-written will, and updated nominee details, you can ensure your financial legacy supports your family exactly the way you intended.
Also Read: Why Should Life Insurance Be a Part of Your Retirement Plan?https://www.vibesofindia.com/why-should-life-insurance-be-a-part-of-your-retirement-plan/
