Estate planning is a critical aspect of financial management for clients, especially in a country like India where family ties and asset distribution hold significant cultural and legal importance. It involves deciding how a client’s assets and properties will be managed and distributed after death. Insurance provides financial protection to the client’s loved ones while ensuring the smooth distribution of the estate in alignment with their wishes.

Mathew P. Joseph, an Indore-based MDRT member with nearly a decade and a half years of experience, explores insurance’s pivotal role in estate planning his clients in India. He says, “Integrating insurance products strategically into estate planning for clients can create a comprehensive financial framework for safeguarding assets and ensuring the smooth transfer of wealth to future generations.”

Joseph says that by including appropriate life insurance policies in estate planning, clients can secure their family’s financial future even after they are gone. He explains further, “Firstly, insurance, such as life insurance, can mitigate financial risks linked to unexpected events like premature death or disability, ensuring financial security for their loved ones. Secondly, a product like whole life insurance can preserve wealth by providing liquidity to cover estate taxes, thus ensuring intended beneficiaries receive the full estate value. Thirdly, for business owners, insurance helps in succession planning, protecting the business from financial losses due to the death or disability of key individuals. Additionally, annuity products can offer a steady income stream to beneficiaries, which is especially beneficial for dependents reliant on the deceased’s income. Moreover, insurance proceeds can settle outstanding debts like mortgages or loans, preventing creditors from claiming against the estate and enabling distribution as per the the client’s wishes without the burden of debt.”

He emphasizes that financial advisors in India must be aware of several common misconceptions and overlooked aspects of estate planning to effectively support their client’s long-term financial goals. He says, “Firstly, many mistakenly believe estate planning is solely for the wealthy. However, individuals across all income levels must ensure assets are distributed per their wishes, minimizing taxes and legal complexities for heirs. Secondly, in the digital age, neglecting digital assets like online financial accounts and social media profiles in estate plans can pose challenges for heirs in managing these assets after the individual’s passing.”

“Moreover, estate planning isn’t a one-time task but requires periodic updates to reflect the client’s life changes such as marriage, divorce, or acquisition of assets. Failing to update plans can lead to disputes among heirs, prolonging legal proceedings. Additionally, appointing guardians for minor children is often overlooked, potentially causing custody disputes and uncertainty about their care in the event of parental death or incapacity. Lastly, the impact of estate taxes should not be underestimated, with taxes significantly diminishing the estate value for heirs,” adds Joseph.

He also shares practical advice for financial advisors when discussing insurance in estate planning. He suggests educating clients about insurance’s role and types; understanding their needs, whether it's providing for dependents or safeguarding business interests; illustrating real-life examples; focusing on long-term planning; addressing concerns, be they cost or complexity; collaborating with estate planning professionals; and regularly reviewing and updating insurance coverage.

He recounts a case where a client approached him with the objective of ensuring financial security for his dependents while also safeguarding his business interests. The client was a small business owner with a family of four, including two young children. The primary concern was to ensure that in the event of an untimely demise, the family would be financially secure and the business could continue operating without disruption.

To meet this objective, he first conducted a thorough analysis of the client's financial situation, including liabilities, assets, and future financial needs. He then recommended a combination of life insurance policies tailored to cover both personal and business needs. This included a term life insurance policy to provide immediate financial support for the family and a key man insurance policy to ensure that the business could continue its operations and secure a replacement for the critical role the client played in the company.

The results were tangible and impactful. The family received a substantial death benefit from the term life insurance policy, which covered their living expenses, children's education, and mortgage payments. The key man insurance policy provided the business with the necessary funds to hire a new manager and maintain stability during the transition period. By incorporating insurance into the estate planning process, he successfully addressed the client's objectives and provided peace of mind, knowing that both the family's financial future and the business's continuity were secured.

Joseph emphasizes the increased importance of estate planning in uncertain times, such as the recent COVID-19 pandemic. He says, “The pandemic has changed how people perceive various aspects of life, including planning for the future. Financial advisors have a responsibility to guide clients toward informed decisions that go beyond their lifetime, ensuring a legacy that lasts for generations.”

Contact: MDRTeditorial@teamlewis.com

The role of insurance in estate planning in India