Do you know what happens to your life cover when you die?

A Will is a legal document specifying how your estate gets distributed after your death. It usually covers important matters regarding the distribution of your property and other assets, as well as the care of any minor children, and pets. If you die without a Will, your final wishes might not be carried out.

Here's how this affects your life cover:

Your life insurance is not typically included in your Will if you’ve nominated a beneficiary. Your insurer will pay the proceeds of your life cover policy directly to this beneficiary. These monies are not included in your estate and are not passed onto the people named in your Will.

Likewise, life insurance purchased through your super fund pays any benefit to your nominated trustee - not to your estate.

There is a key exception: If the beneficiary/ies of your life insurance policy predecease you, your life insurance policy benefit becomes the property of your estate. When you die, the death benefit payout will be made to your estate and distributed according to the terms of your Will - if you have one.

What Happens If I Don't Have a Will?

If you die intestate - that is, without a Will - the state office of the Trustee and Guardian oversees the distribution of your assets. Your belongings are given away according to a set formula. 

Typically, this means around half of your estate goes to your spouse (if you have one), with the remainder shared equally between your children. With the state trustee in charge, this division may result in the sale of your family home or other assets.

If your children are minors, the court can appoint a representative to look after their interests. There may also be tax consequences to reorganising your affairs, which the state trustees don’t have to take into account. A properly written Will can reduce taxes for your estate, and your family will likely receive more of your assets.

What’s typically included in a Will?

A Will is your last chance to direct how your assets and possessions - such as bank balances, property, or valued collectibles - are distributed. If you have a business and/or other investments your Will specifies who receives these assets, in what proportions, and when.

A typical Will specifies distribution of the following:

• Property, such as land or buildings. This includes your personal residence plus any additional properties that you own solely in your own name (see below for more information regarding jointly-owned properties). 

• Cash, including any savings accounts.

• Non-cash assets, such as shares, bonds, businesses, patents, and copyrights.

• Other physical assets like cars, jewellery, artwork, clothing, furniture, personal effects, etc.

• Whom you wish to name as guardians for any minor children or special needs individuals, and any directions for their care including management of any funds or accounts created for this purpose.

• Appointment of one or more individuals to serve as executor of the estate.

• Appointment of one or more trustees of any trusts created by your Will.

• Charitable gifts or donations.

• Payments of taxes owing; while Australia doesn’t have inheritance or estate taxes, there may still be tax obligations for assets that you leave to your family. Your Will can specify whether or not these costs are paid out of your estate via the bequests left to individuals, or not.

• Digital assets, such as online subscriptions, social media accounts, email, e-trade accounts, paypal accounts, and others. 

NOTE: The law is a little slower than the internet, but it’s now a requirement that your Will clearly authorises access for your personal social media accounts.

Most lawyers advise allowing your executor online access to financial accounts, while authorising someone else to access your more personal assets, such as your emails and social media profiles. You’ll want to ensure all your passwords are provided as well**.

What typically isn’t covered in a Will?

While Wills generally address how the bulk of your assets are distributed after you pass away, some things aren't covered. For example, your superannuation is inherited by whomever is named as your beneficiary in your fund’s designation form, not your Will. Other exceptions include:  

• Ownership of any jointly-held property, which automatically transfers to the other co-owner(s) upon your death, and this remains the case regardless of any co-owner’s Will.

• Any accounts that specify a transfer occurring on your death is controlled by this designation, regardless of how this asset is treated in your Will. 

• Any property transferred to a trust (including a living trust) is unaffected by any designation in your Will.

• Life insurance - as mentioned earlier, your insurer pays your death benefit to your nominated beneficiary/ies.

If you don’t have a Will, your death benefit payment will be distributed by the probate court.

What is the probate court?

The probate court determines whether your Will is authentic and valid. It’s the part of the judicial system that handles Wills and estates. 

Probate is the legal process that ensures your debts are paid and the legal title of your assets are transferred to any appropriate heirs and beneficiaries. Your estate, or your family, will likely need to pay probate fees if you die without a Will, though asset holders don’t typically require Probate where an asset has a value of less than $50,000. Sometimes this threshold is $20,000^^.

Who should your life insurance beneficiary be?

There aren’t many restrictions on naming your life cover beneficiary/ies. As long as they’re over 18, you can nominate them. Common choices for beneficiaries include:

• a spouse, including the person (whether of the same or different sex) with whom you’re in a relationship.

• your child, including your adopted child or step-child.

• ex-nuptial child or your partner’s child who may be financially dependent on you.

• any person with whom you have a close relationship; e.g. you’re living together, or providing each other with financial or domestic support, etc.

• Other family members, such as a sibling or cousin.

NOTE: Your life insurance payout cannot be paid to charities or donated. It is not the same as a bequest in your Will.

Find out more about nominating your preferred life cover beneficiary/ies here, or speak to one of our trained brokers.

Do beneficiaries pay taxes on life insurance?

Not usually - especially when the payout is made to a financially-dependent beneficiary such as your spouse, child, or other dependent adult (an unwell sibling, for example). Note that payouts under your income protection cover and/or your superannuation life cover may still be taxed.

We recommend checking with your financial advisor regarding tax implications, bearing in mind that tax laws can and do change over time.

Can a court override my will?

Rarely, but it can happen.

Every Australian state and territory has legislation allowing people to contest a Will, but the eligibility criteria differs across state jurisdictions. Most states also have laws to prevent spouses from disinheriting each other, and to prevent parents from disinheriting their children. 

State law currently mandates that a surviving spouse is entitled to receive a set percentage of their deceased spouse’s assets (typically between 30% and 50%). If your Will assigns a smaller percentage of your assets to your surviving spouse, a court may override your Will. 

What Does a Will Cost?

As mentioned, you can write your Will yourself for free, but there’s a risk of making a mistake that could cost your descendants in the long run. 

Expect to pay anywhere from $300 to $1,000 for a basic Will prepared by a lawyer*. The price depends on how complicated your document is, the state you live in, and of course which lawyers you choose to go with. 

Legal services in smaller towns have been known to charge less, with the average hourly rate ranging from $100-$300 per hour. This can double for law practices specialising in Wills and estates that are based in larger metro areas*.

Do you need both a Will and a living trust?

A Will is still necessary if you have a living trust. While your Will is strictly concerned with what happens to your assets after you die, a living trust^ deals with the management of your assets while you’re still alive.

You can name yourself as the trustee and maintain control of all your assets until a predetermined time. 

Remember that death is not the only way you can lose the power to manage your assets. Illness and injury can impact your ability to handle your wealth effectively. Others may need to manage your affairs for a while. This can be temporary, or long-term, but as long as you’re alive, your Will cannot affect these arrangements. 

A key feature of trusts is they can take effect immediately and are designed to help manage your affairs. This makes it an important process in planning your estate, but it doesn’t replace a Will.

On your death, the trust continues to function as a legal entity (a bit like a company), with a new trustee in charge - which will be someone nominated in your Will. 

Most trusts only deal with specific assets, such as life insurance or a piece of property. Typically, a trust does not deal with all of your assets. Only your Will does that.

Should you put life insurance in a living trust?

You can put your life insurance policy into your trust as soon as it starts, or at a later date. Some of the benefits of doing this include:

• Proceeds of your policy are paid to the right person/people.

• Your benefit payout is executed quickly, so long as there's at least one surviving trustee. No need to wait for probate.

• The structure of your trust itself is revocable (i.e, can be altered during your lifetime).

• Assets placed in a living trust (such as your life cover policy) don’t have to go through probate, speeding up the process of accessing any payout for you and your family when you need it most.

While you’re free to change the structure of your trust as you wish, placing your life cover policy in trust is an 'irrevocable act'. 

This means once your policy is in trust this decision can't be changed later on, so you need to be certain that putting your policy in a trust is right for you. That said, as long as you remain a trustee of your living trust, you’ll maintain control of your policy during your lifetime. 

NOTE: Usually, any assets that aren’t retitled in the name of your trust are subject to probate. If you haven't specified who gets these assets in your Will, the probate court may  distribute them in a way you haven’t chosen. This includes your life insurance benefit payout.

Got more questions about life insurance? Talk to a Compare Club insurance broker today.

Does a Will supersede a life insurance beneficiary?

Not legally. If a beneficiary is nominated in your life insurance policy, then the insurer pays the proceeds of the policy directly to your beneficiary. In essence, the monies payable under your life insurance policy aren’t part of your estate and won’t be passed onto the beneficiaries named in your legal Will.

What happens to a life insurance policy when the owner dies?

When the policy owner dies, the life insurance company pays over the death benefit to your named beneficiary. If no named beneficiary exists, the death benefit is paid to the deceased's estate. The death benefit is typically paid out within 30 days of receiving proof of death.

Can you leave your life insurance to your estate?

Yes - if you don't nominate a beneficiary for your life insurance policy, and you hold the policy in your name (as opposed to a company name, etc.), your life cover benefit automatically becomes part of your estate. The payout becomes part of your pool of assets after you die, and is distributed according to the instructions in your Will.

Do Wills expire in Australia?

No, Wills don’t expire in Australia. However, some major life events may void a Will, including:

• Marriage;

• Divorce;

• Death of an Executor/s;

• Death of a beneficiary/s;

• Disposal of a gifted asset;

• Bankruptcy;

• Changes in family circumstances; e.g. the birth of a high-needs child.

Any or all of the above may impact your choices as to how you dispose of your assets, and/or the law’s effect on your existing Will. This is why it’s a good idea to review your Will every two to three years.**

Does a Will override a beneficiary on a life insurance policy?

As mentioned above, if you’ve nominated a beneficiary for your life insurance policy then your life insurance policy won’t be included in your estate.

If there isn’t a named beneficiary under your life insurance policy then the payout will be included in your estate and distributed according to the terms of your Will.

If your life insurance policy is via your superannuation fund, it’s recommended that you seek advice from your financial advisor on making a binding nomination to ensure any payout monies go to the beneficiary/ies you intended.

Conclusion:

It’s smart to plan for the inevitable, but you don’t have to do the hard work alone. Get expert assistance to ensure your life cover benefits are set up to honour your final wishes. 

Speak to a Compare Club broker today.

*Average Cost of Making a Will ^Does a Living Trust go through Probate `Estate planning & Wills #What is an Executor **How Wills work in Australia ^^Deceased Estates ^^How to Avoid Probate in Australia Compare Club does not compare all life cover products in the market.

Matthew Lang is the general manager of life insurance at Compare Club. Matthew leads a team of dedicated professionals who are passionate about helping individuals and families make informed decisions about their life insurance needs. Whether it's finding the right coverage for your specific circumstances, comparing policies, or optimizing your existing policy, Matthew and his team are here to provide expert guidance and support.

Meet our life insurance expert, Matthew Lang

Matthew's top life insurance tips

• 1

  Identify what you want out of life insurance before you buy. Knowing the purpose of your life cover will help you choose a policy that meets your needs.

• 2

  It's easy to assume that the sole purpose of life cover is to leave money behind for your family, but there's more to it than that.

• 3

  Life insurers like those on our panel pay an average of 97% of claims in full.

• 4

  There are different types of life insurance, including term life insurance, income protection, trauma cover and total and permanent disability cover.