Who Gets My Life Insurance When I Die?
The goal of life cover is to provide a lump sum of money to someone or for some purpose when you die. When purchasing a life insurance policy, you must nominate to whom this money will go.
Nominating a beneficiary for life insurance helps your loved ones to get the money more quickly than having to wait for your estate.
The amount your beneficiary will receive depends on your coverage and whether life insurance is held inside or outside your superannuation.
What is a beneficiary?
A beneficiary is a person(s) you want your life insurance proceeds to be paid to when you die. Beneficiaries are generally those people dependent on your income, for example, your spouse or children. To appoint someone as your beneficiary, you must be the Policy Owner of the life policy, in which case you can usually nominate up to five beneficiaries.
If you choose multiple beneficiaries, you can decide which percentage of the lump sum each person should receive.
- Spouse or long-term partner.
- Children, your spouse’s children or your adopted child.
- Parents or siblings.
- Best friend.
- Business partner.
How to choose beneficiaries for life insurance
- Look at the reasons you're buying life insurance in the first place. Determine who is financially dependent on you, what costs you want to be covered (mortgage, outstanding debts and funeral) and who you want to help, for example, a charity that's close to your heart.
- Review your options. Do you want one beneficiary or multiple? A recipient does not need to be a person; it can be a business, a charity or your estate – as long as there is an insurable interest.
- Have a Plan B: In case your primary beneficiary should pass away make sure you list a second (contingent) person to whom the benefit will be paid.
- Take the beneficiary’s point of view. Be sure to consider how being your beneficiary might influence the relationship between other nominated (or un-nominated) people, and how each will react to receiving their designated share.
- Be specific. Merely naming "my husband or wife or children" as beneficiaries can lead to speculation and confusion. Be sure to provide details regarding the person's names and how much each should be entitled to receive.
Mistakes to avoid when choosing a life insurance policy beneficiary
- Failing to name a beneficiary of your life insurance policy. Proceeds can take much longer to reach your loved ones if they end up in your estate.
- Not informing someone that they are a beneficiary. Your beneficiary will likely be the one who needs to notify your insurer of your death and start the procedure of lodging a claim. Make sure the people you've nominated to receive the pay-out know where they can find the policy details.
- Forgetting to update your beneficiaries. If your circumstances have changed, for example, you've gotten divorced, be sure to update your list of beneficiaries.
- Nominating a minor that cannot access your life cover proceeds until they turn 18. Also, consider what an 18-year-old might do with a large lump sum of money. You might instead want to arrange the proceeds go into a trust until your child is about 25 years old.
- Not checking beneficiary details have been correctly captured in your policy documents. Incorrect information about a beneficiary can cause lots of confusion and might delay payment.
Avoid these mistakes by talking to a broker
Your life insurance beneficiary vs your Will
Your Will cannot override your life insurance beneficiary nomination. However, if none of your named beneficiaries is alive when you pass away, the life insurance proceeds will typically be paid to the policyholder's estate. The policy terms and conditions applicable to the nomination of beneficiaries are set out in your policy document.
If you don't nominate a beneficiary, your life insurance proceeds will be paid to your estate and will be distributed according to your Will, if you have one in place. If you do not have a Will, your estate will be subject to state intestacy laws. This can leave significant financial implications for your family.
When choosing to have your life insurance proceeds paid to your estate, you might want to consider including a testamentary of trust within your Will so that the objectives of your life insurance are met. For example, proceeds pass to your intended child beneficiaries at their predetermined age.
Life insurance beneficiary rules inside Superannuation
For superannuation law purposes, you are restricted to nominating either your Estate or a person who qualifies as a “dependent” to receive your super proceeds. If you do not name a valid beneficiary, the trustee of your super fund could override your decision and distribute the funds appropriately. You can make a binding or non-binding beneficiary nomination:
- Provide a formal written direction stating who you want your account balance and death benefit to be paid to. This is a legally binding nomination and must be signed by you in the presence of two witnesses (over 18 years of age) who must each sign and date the declaration.
- You nominate who you want to receive your fund and life insurance proceeds, but it is not legally binding. The trustee of your super fund will consider your wishes, but ultimately, they have complete discretion as to who will receive your death benefit.
Eligible life insurance policy beneficiaries within your super fund include:
- Dependants: Your spouse and children who are financially dependent on you. A spouse refers to a person, regardless of their gender, with whom you are either legally married or who lives with you on a genuine domestic basis, in a relationship as a couple.
- Legal personal representative: The person acting as the executor or administrator of your estate, shall distribute the proceeds according to your Will.
- People in an interdependent relationship: Live-in adult carers or elderly parents and siblings with whom you have a close relationship and who you support financially may be nominated as a beneficiary.
Take note of potential tax implications: If life insurance is held inside of super and your beneficiary is not financially dependent on you, then the lump sum benefit paid to them will generally be taxed.
Frequently asked questions and answers
Nominating a beneficiary can ensure you are getting the certainty you require as to who will receive your life insurance benefits. If you are unsure about your beneficiary options or who to nominate, you can fill in the quote form above or call a specialist on 1300 743 254.
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