Updated 28 October 2026
CM Law's Ultimate 50 List: Making a Will #42 - How do I handle life insurance policies in my will?
How do I handle life insurance policies in my will?
Coordinate your will with each policy’s ownership and beneficiary arrangements. Life insurance does not automatically pass through your estate, and a will usually cannot redirect a payment owed directly to someone else. Insurance held through super follows separate rules. Have a solicitor review the documents together before relying on the intended outcome.
Start with the policy schedule, current terms, nomination records and latest super statement. Identify who owns the policy, whose life is insured and who is entitled to the payment. Those may be different people. Recording a policy in your asset list helps your executor find it; it does not itself change the recipient.
ASIC Moneysmart’s life-cover guidance explains the importance of choosing beneficiaries. Ask the insurer to confirm the current arrangement in writing rather than relying on what was discussed when cover began.
When does life insurance become part of my estate?
Life insurance becomes an estate asset when the applicable policy or superannuation arrangements make it payable to your legal personal representative. Money payable directly to another beneficiary ordinarily follows that entitlement instead. The absence of a nomination does not establish one universal result: ownership, policy wording and fund rules must be checked.
Section 48A of the Insurance Contracts Act 1984 recognises rights of third-party life-policy beneficiaries. Where the beneficiary is not the life insured, money paid under that entitlement does not form part of the life insured’s estate. These common arrangements illustrate the distinction:
| Arrangement |
Who ordinarily receives payment? |
Role of the will |
| Personal policy with a valid direct entitlement |
The beneficiary or owner entitled under the policy. |
Does not ordinarily redirect that payment. |
| Policy payable to the estate |
The executor or administrator, for the estate. |
Governs distribution, subject to estate obligations and applicable law. |
| Insurance held through super |
Eligible recipient or estate, under fund rules and valid nominations. |
Controls distribution only if the benefit reaches the estate. |
How is life insurance inside super treated?
Insurance held through super generally forms part of the super death benefit, alongside the account balance. The trustee distributes that benefit under superannuation law, the fund’s governing rules and any valid nomination. A direction in your will alone does not require the trustee to pay the benefit to your chosen person.
Eligible recipients generally include a spouse or partner, children of any age, financial dependants, someone in an interdependency relationship, or your legal personal representative. An otherwise ineligible friend does not become eligible simply because you nominate them.
A valid binding nomination directs payment; a non-binding nomination guides the trustee’s decision. Some binding nominations lapse, commonly after three years; others are non-lapsing. Check the nomination options, eligibility, witnessing, lodgement and renewal requirements for your fund. SMSF documents require particular care. Obtain confirmation that the fund has recorded the intended nomination.
Should I direct insurance to my estate or an individual?
The appropriate recipient depends on your family, intended beneficiaries and estate plan. Payment to the estate can support arrangements created by your will, including a testamentary trust. Direct payment can avoid that distribution process. Neither option is universally preferable, and each needs consideration of tax, administration, access to funds and potential disputes.
If you want super paid into the estate, use the fund’s correct nomination for your legal personal representative. Naming the executor personally is not necessarily the same thing. Discuss how children’s benefits should be held and managed; a will’s trust cannot automatically control money paid outside the estate.
The Law Society of NSW also identifies potential notional-estate orders concerning super death benefits paid outside the estate. NSW’s statutory requirements must be satisfied; direct payment is not a guaranteed shield against a family provision claim.
Are life insurance proceeds subject to inheritance tax?
Australia has no inheritance tax, but that does not make every insurance-related payment tax-free. Tax treatment depends on whether cover sits inside super, the payment type, relevant tax components and the recipient’s status. Obtain tax advice before deciding to direct benefits to an individual, your estate or a testamentary trust.
Ordinary personal life-cover lump sums outside super are generally tax-free. Business insurance, investment-style policies and transferred policy rights need separate advice. Do not assume income-protection payments follow the same treatment.
A super death benefit paid as a lump sum to a death benefits dependant for tax purposes is tax-free. An adult child can qualify to receive super without qualifying for that tax treatment.
For payment to an estate, section 302-10 looks to those who benefit, or are expected to benefit, from the super death benefit. The executor must address applicable tax before distribution. Separately, the ATO’s estate guidance explains that income earned during administration may require tax reporting.
When should I review ownership and nominations?
Review your insurance arrangements when relationships, dependants, debts or business interests change, and whenever you update your will. Separation, divorce, remarriage or a beneficiary’s death should prompt a specific check. Do not assume changing your will or ending a relationship automatically updates the insurer’s records or preserves a valid super nomination.
TAL’s guidance on separation and divorce illustrates why ownership matters: some couples jointly own policies, while others own cover over each other’s lives. The life insured may not have sole authority to change the recipient.
- Confirm who can authorise changes and whether another owner’s consent is required.
- Check what happens if a nominated beneficiary dies first, and arrange permitted alternatives.
- Review cover before changing super funds or cancelling an existing policy; the replacement may have different eligibility requirements or exclusions.
- Keep the completed form, proof of submission and written confirmation with your estate-planning records.
What does a real insurance nomination case show?
In Selig v Selig [2024] QSC 189, a life insurance nomination was completed but never submitted to the insurer before the policyholder died. The insurer required a court order before paying the claim. This Queensland decision shows why signing a form and ensuring the insurer receives it are separate steps.
The nomination allocated a $150,000 benefit equally between two adult children. They relied on that form and a separate document titled “My Wishes” as their father’s informal will. The Supreme Court of Queensland accepted that the documents were intended to operate as his will and recognised them under Queensland’s informal-will legislation.
The decision depended on its evidence and legislation. It does not establish that every unsubmitted nomination is effective or that a will automatically overrides an insurer’s nomination. Complete the insurer’s required process during your lifetime and coordinate it with a properly prepared will, rather than relying on later court proceedings.
What should an executor do about insurance claims?
An executor should identify every policy and super account, notify the relevant organisations and establish whether a benefit belongs to the estate. Obtain the required claim documents and record communications. Do not distribute an anticipated payout before entitlement, claim acceptance and any applicable tax or competing claim issues have been addressed.
The NSW Government’s executor guide distinguishes estate assets from insurance proceeds payable elsewhere. Ask each provider whether it needs a death certificate, identity and relationship evidence, probate or letters of administration. Requirements vary; a grant is not invariably required for every payment.
Follow up missing documents and ask for reasons if a claim stalls. Moneysmart’s claims guidance outlines the super claims process. Obtain prompt advice about an adverse decision because objection and complaint deadlines can be strict.
What should I bring to a legal review?
Bring your will, policy schedules, ownership details, beneficiary forms, insurer confirmations and current super statements. Explain whom you want to support and whether money should be available immediately or managed over time. Your lawyer should coordinate the legal documents, with a qualified financial adviser and tax adviser addressing cover and taxation.
Include details of dependants, former partners, children from earlier relationships, business agreements and any existing trusts. Ask for a clear record of the changes needed, who will submit them and how completion will be confirmed.
CM Lawyers’ wills and estates team can review how your will fits with your insurance arrangements. Arrange a legal review before treating a nomination form or a clause in your will as a complete estate plan.
General information for NSW estate planning. Always have a lawyer check your will and insurance arrangements, and obtain financial and tax advice appropriate to your circumstances.
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