Most people sort out life insurance when they take on a mortgage. The bank often requires it, and it feels like the responsible thing to do. But far fewer people think about whether they have a proper will in place, and even fewer consider how their insurance and will actually work together. Getting both right is one of the most practical things you can do for your family's financial security.
Why Insurance Alone Isn't Enough
Life insurance pays out a sum of money when you die. That part is straightforward. But where that money goes, and how quickly your family can access it, depends on how you've set things up. If you've nominated a beneficiary on your policy, the payout goes directly to them without going through your estate. That means your family can typically access those funds within a few weeks rather than waiting months for probate to work through the courts.
The problem comes when people haven't nominated a beneficiary, or their nomination is out of date. If there's no valid nomination, the insurance payout falls into your estate and gets distributed according to your will. And if you don't have a will either, you've created a real mess for the people you were trying to protect.
What Happens If You Die Without a Will
Dying without a valid will is called dying intestate, and in New Zealand, the Administration Act 1969 determines who gets what. Your assets get divided according to a set formula based on family relationships. Your partner and children receive set proportions, and you have zero say in how it plays out. The process takes longer, costs more in legal fees, and often produces outcomes that don't match what you would have wanted.
For example, if you're in a de facto relationship but haven't formalised anything, your partner's entitlements under intestacy rules might not reflect the life you've built together. Blended families add even more complexity. A will removes the guesswork and makes your wishes legally clear.
Coordinating Your Will and Insurance
Your will and your insurance should work as a team, not in isolation. Your will should acknowledge that you hold life insurance and explain how it fits into the overall picture. This helps your executor understand the full scope of your estate and avoids confusion about who gets what.
Think about it practically. If your life insurance pays $500,000 directly to your partner, that's separate from the assets distributed through your will. You might then structure your will to direct other assets - property, savings, KiwiSaver death benefits - to children or other family members. The point is that insurance and the will together should cover everyone you want to provide for, without accidentally leaving someone out or doubling up in ways that create resentment.
Keeping Beneficiary Nominations Up to Date
This is one of those things that people set and forget, and it causes real problems. Your beneficiary nominations need to reflect your current life, not the life you had when you first took out the policy. Marriage, separation, divorce, new children, the death of a nominated beneficiary - all of these change who should be receiving your insurance payout.
Make it a habit to review your nominations whenever something major changes in your life. And check that your nominations are specific and unambiguous. "My children" might seem clear enough, but if you have children from different relationships, or stepchildren you consider your own, vague wording creates fertile ground for disputes.
Guardianship and Children
If you have children under 18, your will should nominate a guardian. This is separate from the money side of things but equally critical. Insurance provides the funds for your children's care, but guardianship determines who actually raises them and manages those funds on their behalf.
Think carefully about whether the person you want raising your children is also the right person to manage a significant sum of money. Sometimes the best guardian and the best financial manager are different people. In those cases, setting up a trust to hold the insurance proceeds can make sense, with a trustee managing the money and the guardian managing the day-to-day care.
When a Trust Makes Sense
For larger insurance payouts, directing the money into a trust rather than paying it straight to an individual can offer real advantages. A trust protects funds from relationship property claims, creditors, and poor financial decisions. It also lets you control the timing of distributions - for instance, releasing funds to children at age 25 rather than dumping a large sum on an 18-year-old.
Trusts are particularly worth considering when beneficiaries are young, when there are blended family dynamics, or when the sums involved are large enough that professional management adds value. Setting up a trust properly requires a lawyer, and the ongoing administration has costs, so it's not the right answer for every situation.
Getting Professional Help
A will drawn up by a lawyer typically costs $300 to $600 for a straightforward situation, more for complex estates. That's a tiny investment compared to the legal costs and family stress that come from dying without one or having a poorly drafted document that gets challenged. DIY will kits exist, but the consequences of getting something wrong can be severe - a single ambiguous clause can trigger months of legal proceedings.
On the insurance side, a good adviser can help you work out how much cover you actually need and make sure your policy structure aligns with your estate plan. The best outcomes come when your lawyer and your insurance adviser talk to each other, so that your will and your insurance are genuinely coordinated rather than set up in isolation.
Take Action Now
If you've got life insurance but no will, getting a will sorted should be a priority. And if you have a will that you haven't looked at in years, book a review. Life changes, and documents that made perfect sense five years ago might not reflect your current situation at all. A couple of hours spent getting this right gives your family genuine security and clarity at the worst possible time.
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