We have already written an overview of estate planning — when to start and what tools exist. This article takes a closer look at one tool that is unusually powerful: life insurance. It has properties that a will, or any other asset, cannot replicate.
Property 1: the money reaches the named person, directly and quickly
An individual's ordinary assets must go through estate administration, which involves appointing an administrator and takes a fair amount of time. The sum insured under a life policy, however, is paid directly to the beneficiary named in it, generally without waiting for that process. This is why life insurance is often the first money to reach a family — during the period when expenses keep arriving daily while everything else is still locked up.
Property 2: it creates an estate instantly
For someone whose assets are still modest, life insurance is the only tool that creates a substantial sum for the family immediately, from the moment the policy is in force. A person in their thirties who has only just started saving may have a few hundred thousand baht put aside, but a sum insured in the millions makes their "estate" large enough to genuinely look after the family today — without waiting another twenty years to accumulate it.
Property 3: liquidity for an estate made of hard-to-sell things
The classic problem with estates in Thailand is that most of the value sits in land, a house, or a business — valuable, but slow and difficult to sell. Meanwhile the costs after a death arrive at once: outstanding debts, household expenses, and any tax obligations that arise under the applicable rules [check the latest information]. The sum insured acts as the cash that keeps the family going, so they are not forced to dump assets below their worth simply to have money circulating during a difficult stretch.
Property 4: dividing the indivisible, fairly
The problem that has split more than a few families: one house and three children, or a business that only one child will carry on while the others receive nothing. Life insurance can restore the balance. For instance, the eldest child is intended to take over the business, and a life policy names the other two as beneficiaries for a sum close to the value of their share. Everyone receives fair value, in different forms. The family relationship is the asset this plan protects.
What to know, and the limits
- The beneficiary designation is the heart of it. Name people clearly and keep it current, particularly after a major life event.
- The tax treatment of insurance proceeds and of each type of inherited asset follows specific rules that can change. Check the current rules or consult a tax specialist alongside your planning [check the latest information].
- Life insurance is one piece of an estate plan, not the whole of it. A will, an inventory of assets, and a conversation with your family are all still necessary.
How to begin
Try three steps. First, list your assets and the people you want to provide for. Second, look for gaps in liquidity or in fairness. Third, design the sum insured and the beneficiary designations to close those gaps. If your situation has its own complications — a business, land, several children — message us on LINE any time; we are glad to help you see the whole picture first.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.