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Life Insurance Beneficiary: Who Gets My Life Insurance When I Die?

Russell Cain Fact Checked Updated: 17 November 2023

When a person buys life insurance, they name a beneficiary – someone who will receive the payout from the policy in the event of the policyholder’s death. Most people choose their spouse or children as beneficiaries, but you can name anyone you like as a beneficiary.

If you are the beneficiary of a life insurance policy, it’s important to understand your rights and responsibilities. As the beneficiary, you will be responsible for claiming the payout and determining how to use it. You may also be responsible for paying any taxes that are owed on the proceeds.

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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. Generally, they’ll be responsible for making the life insurance claim when the time comes.

If you choose multiple beneficiaries, you can decide which percentage of the lump sum each person should receive. Keep your life insurance beneficiaries and policy up-to-date, especially when significant life changes take place, such as getting married, starting a business or having kids.

Who should your life insurance beneficiary be?

You may choose whoever you like as your beneficiary. Generally, it would be someone reliant on your income; your spouse, financially dependent child, parents or siblings. However, if you nominate children, the allocated benefit will only be paid to them once they turn 18 years old.

What happens to my life insurance when I die?

If you have a life insurance policy and pass away, the lump sum benefit will usually get paid to the person(s) you nominated to receive it, this will typically be your life insurance beneficiary. When completing your application form with your insurance company, you must typically submit the names and details of the recipient(s) who you want to receive the proceeds of your life insurance policy. Generally, people choose their spouse and/or children as their beneficiaries.

The amount your beneficiary will receive depends on your coverage and whether life insurance is held inside or outside your superannuation.

Life insurance beneficiary policy options

Anybody with an insurable interest can be your beneficiary. An insurable interest is a relationship in which a person will suffer financial loss in the event of your death. Your chosen life insurance beneficiary could be your:

  • Spouse or long-term partner.
  • Children, your spouse’s children or your adopted child.
  • Parents or siblings.
  • Best friend.
  • Business partner.
  • Trust.

How to choose beneficiaries for life insurance

  1. 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.
  2. 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.
  3. Have a plan B: In case your primary beneficiary should pass away or, make sure you have a secondary (contingent) person to whom the benefit will be paid.
  4. Take the beneficiary’s point of view. Be sure to consider how being your beneficiary might influence the person(s) relationship with others nominated or not nominated and how each will react to receiving their designated percentage.
  5. 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

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Life insurance without a beneficiary

If you don’t nominate a beneficiary, your life insurance policy 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 as your life insurance death benefits will be paid into the life insurance policy owners estate.

When choosing to have your life insurance death benefit 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 policy are met. For example, proceeds pass to your intended child beneficiaries at their predetermined age.

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 payout 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.

Can you change the beneficiary on life insurance?

Understanding how to Change Beneficiaries on Life Insurance in Australia involves several key steps. It’s important to know your policy’s details and the rules that apply. Being informed is crucial whether you’re updating your policy due to life changes or just reviewing your current choices.

How to make a life insurance claim

When you make a claim from your life insurance policy, you will need to provide certain information to the insurer. This includes the policy number, the name of the insured, and the date of death. You will also need to provide proof of death, such as a death certificate. The insurer may also request other documentation depending on the policy.

Your life insurance company will typically process claims in a timely and efficient manner. After a policyholder submits a claim, the company will review the information to make sure it is complete. If any additional information is needed, the company will contact the policyholder. Once the company has all the information it needs, it will process the claim and pay out any applicable life insurance benefits.

Do beneficiaries pay taxes on life insurance?

Depending on whether your life insurance policy is held inside or outside your superannuation fund, your beneficiaries might pay taxes on your death benefit. Life insurance proceeds from policies inside Super will generally be tax-free if paid to financially dependent beneficiaries (e.g. your spouse or young children). When paid to non-financial dependents, they can pay a tax rate of up to 35%.

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 when purchasing life insurance:

  1. Binding 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.
  2. Non-binding nomination
    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.

Options for your choice of superannuation beneficiary

  1. 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 lives with you on a genuine domestic basis in a relationship as a couple.
  2. Legal personal representative: The person acting as the executor or administrator of your estate, shall distribute the proceeds according to your Will.
  3. People in an interdependent relationship: Live-in adult carers or elderly parents and siblings with whom you have a close relationship and 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

  • Who can change the beneficiary on a life insurance policy?

    Only the policy owner, the person who took out the policy and is paying the premiums, can make changes to the beneficiaries listed on your life cover. As the policy owner, you can change a nominated beneficiary or remove previous nominations at any time before a claim occurs. Most insurers will require you to fill out a change of beneficiary form.
  • Who inherits if a beneficiary dies?

    If the primary beneficiary on your life cover dies, the sum insured will go to the next beneficiary on your list. This beneficiary is referred to as the secondary or contingent beneficiary. The continent beneficiary may only receive the benefit proceeds when the primary beneficiary dies. If there is no contingent beneficiary, the benefit will usually go to your estate and be paid according to your will.
  • What happens if one of my beneficiaries die before me?

    Contact your life insurance provider and change your beneficiary details. Your provider will supply you with the necessary “change of beneficiary” documentation which you should complete as soon as possible. You can usually either complete the form online or print it out, fill it in and post it to your insurer.
  • Do life insurance companies contact beneficiaries?

    No. It is the responsibility of the nominated beneficiary to contact and notify the life insurance company in the event of your death. The insurer will provide the necessary claim forms and will stipulate whatever additional information they may require.
  • Can a power of attorney override a beneficiary on life insurance?

    Generally, power of attorney doesn’t give anyone the authority to sign a beneficiary designation form, but this varies from insurer to insurer. Usually, only the policy owner can make changes to a life insurance policy, including changes to the nominated beneficiaries.

    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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