Life Insurance Beneficiary Policy Options

Published: April 15, 2019

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.

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Beneficiary definition

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.

Who gets 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, your beneficiaries. When completing your application form, you must 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.

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.

Keep your beneficiaries and policy up-to-date, especially when significant life changes take place such as getting married, starting a business or having kids.

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

  • Failing to name a beneficiary of your life insurance policy. Proceeds to reach your loved ones can take much longer if it ends 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 knows 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 your 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.

To help you avoid these mistakes talk to a broker

Life insurance without a beneficiary

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.

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.

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:

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.

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.

Rather want a policy outside of super?

Frequently asked questions and answers

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.

Policy Maximum Cover Maximum Entry Age Expiry Age  
NobleOak Direct Life Insurance AIA
$15,000,000
69
99
Protect your family with Life Insurance and pay on average 20%* less when compared with other insurers. T & Cs apply. Consider the PDS. Issuer is NobleOak Life Limited ABN 85087648708. AFSL 247302.

Ask an Expert?

30 Comments

  • Steve |

    My son had life insurance, but no beneficiaries recorded at the time of death. He has no partner or children and no will. Who would be the beneficiary/s? He was only 19 years old.

    • SPECIALIST
      Anneke Van Aswegen |

      Hello Steve,
      I’m sorry for your loss. My condolences to you and your family.

      When someone passes away and there is no Will, the lump sum benefit will typically pass to policy owner and if this is the same as the life insured then it will pass to the insured person’s estate. Where someone passes away without a will they are said to be ‘intestate’.

      Usually, intestate assets are distributed to the insured person’s closest living relatives. However, the intestacy legislation determines the distribution of the person’s estate and might vary depending on where in Australia you live.

      The person’s next of kin will usually need to apply for a grant of administration, allowing them to legally access the insured person’s bank account and other assets.

      I hope this has been helpful.

  • Bob |

    I have a life insurance policy inside superannuation. I wish to nominate my children as beneficiaries and receive the policy benefit in a trust structure. Do I need to establish the trust prior to my death or can this all be defined in my will?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Bob,

      Thanks for reaching out. As with a normal life insurance policy held outside of Super, you can nominate anyone as your beneficiary. If you want the trustee of your supper fund to pay the benefit to your beneficiaries in accordance to your wishes, you’ll generally want to select a binding nomination.

      On the other hand, you can also request that your death benefit is paid to your estate in order for a testamentary trust to take effect as per the specifications of your will.

      Either way, it’s important that you make a nomination, otherwise, the trustee can decide how your benefit will be paid out after your death.

  • Daughter |

    Mum passed away recently but did not name a beneficiary regarding her life insurance policy, are you able to give me the step by step information that I need to access Mums funds?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi. I’m sorry to hear about your mothers passing.

      Generally, when no beneficiary is named, the benefit will go towards your mother’s estate and may be distributed according to her will.

      If she did not leave a will; the lump sum benefit may be distributed to her closest living relatives. However, the distribution of her estate might vary depending on where in Australia she lived.

      You’ll usually need to apply for a grant of administration, allowing you to legally access your mum’s bank account and other assets.
      All the best.

  • Karen |

    Anneke,
    My brother has passed away making me executor and trustee in his will. During the process of locating and claiming insurance and super I am concerned about whether the payouts will be made to the estate first to help with the keep up the property or if the whole balance will be directly paid to the beneficiary (with or without notifying me) where the property could not be kept in good repair.
    Karen

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Karen. I’m terribly sorry to hear about your loss.

      If your brother did not name a beneficiary on his life insurance policy and superannuation the payouts generally go directly to his estate to be dealt with by the executor of his estate according to his Will. On the other hand, if he did name a beneficiary, it will go directly to them, his Will will not supersede a beneficiary nomination.

      It is the beneficiary’s responsibility to contact the life insurance company and super fund. However, if your brother did not inform the people whom he made beneficiaries, this can prolong the process.

      So, what you can do is:
      1. Try to find your brother’s insurance paperwork (policy schedule), which will list who he named as beneficiary. Then have that person contact the relevant companies requesting the claim forms.
      2. If you’re unable to find the relevant paperwork, contact the life insurance company and super fund yourself providing your brother’s details so they can look on their system and notify you whether he listed a beneficiary and who that person is.

      I hope this helps a bit.
      Anneke

  • Belinda |

    Please explain the tax implications for a term life policy where my beneficiaries are my 2 daughters one is a financial dependent beneficiary and the other is a non-financial dependent.

    • SPECIALIST
      Anneke Van Aswegen |

      Hello Belinda,

      I would love to help, but ComparingExpert and consultants are not tax specialists. To answer your question, you might want to ask your accountant or a tax professional for assistance.

  • lawrence haryslak |

    I’m my dad’s Durable Power of Attorney (POA) and because my mom passed away he needs to update his life insurance beneficiaries. Since my dad has a difficult time writing, can I fill out the necessary forms and have him sign his name as best he can?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Lawrence, excellent question!

      Yes, as POA you can fill in and sign the updated beneficiary form on behalf of the policy owner, your dad. However, I would double check this with his insurer beforehand. Also, please take into account that the rules around POA can differ in each state.

  • Ben |

    Hi, my mother recently passed away from a heroin overdose. Now, neither Ior my sister are beneficiaries. The sole beneficiary is actually my mother’s partner. Recently I heard that the death insurances had been approved. I’m wondering, once approved how long until they release the money?

    My mum’s partner is saying he’s waiting on the coroner’s report etc. He is willing to split the money evenly between me and my sister. How can I make sure that he is going to do the right thing? We have made him sign a statement in December stating he will split the money 3 ways, regarding my mothers super and also the death insurance money. What do we need to do or be careful of?

    Thank you kindly
    Ben Armstrong

    • SPECIALIST
      Anneke Van Aswegen |

      Hello Ben. I’m sorry to hear of your mother’s passing. Condolences to you and your family.

      When a life insurance claim will be paid is dependent on several variables and is different for each insurer. Generally, the insurer will require a valid death certificate, the filled in claim forms and any supporting documentation they might have requested, for example, the coroner’s report. Once the claim has been approved the benefit will be paid promptly to the nominated beneficiary.

      However, claims made from a super fund needs to meet the insurer’s terms and conditions, as well as a condition of release under the Superannuation Industry Supervision (SIS) legislation. This may take a bit longer.

      Regarding the statement you had your mother’s partner sign, I suggest seeking legal advice.

  • G Ball |

    Super life insurance for dependant children being paid to their mother, the legal guardian. Can some be used to pay off the mortgage of the home they all live in?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi,
      If you’ve nominated their mother as the beneficiary of your super life insurance, it’s generally up to her how she wants to spend the money. However, if you nominated your estate as your beneficiary, then the money will generally be paid to your estate and used as you’ve stipulated in your Will. However, you must then have a Will with clear directions. You might want to speak to an insurance specialist regarding your options. Feel free to call us on 1300 743 254.

  • Jo Harvey |

    I took out a life assurance policy 23 years ago with my then partner and husband. We split up 15 years ago and I took over the policy in my name only and continued to pay.

    I have tried several times to have my ex-husband removed as the beneficiary and executor. However, I do not have the original documents and neither does the insurance company.

    Therefore, the insurance company is refusing my request to change the beneficiary and executor without his written consent. I have no contact with him anymore and do not know where he lives. How should I move forward to ensure that my daughter receives my assurance when I die?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Jo.

      As policy owner of the life insurance policy, you should be able to change the beneficiary on your policy. As long as there is proof you are the policy owner, i.e. you ex-husband filled in the correct forms 15 years ago.

      Please give us a call on 1300 743 254 so a specialist may assist you.

  • Emma |

    My partner has life insurance but says no one is named on there as a beneficiary just me as a sole trustee. As a trustee can I also be a beneficiary? He wants me to have the payout and decide what happens to it all. I would give his children a lump sum each but need to know I would also be looked after? Do I need to be a beneficiary instead of a trustee?.

    • SPECIALIST
      Anneke Van Aswegen |

      Hello Emma.
      A trustee’s job is usually to handle any assets held in a trust in accordance with the terms of the trust, generally stipulated in a person’s will. The trustee does not get the life insurance payout unless they are nominated as the policy beneficiary.

      The policy owner, your partner, will need to contact their insurance company and request forms to indicate who the beneficiary of their policy should be. That person or persons (if your partner would like to leave their children a benefit) will then receive the lump sum amount upon their death.

  • Kim Gray |

    My second husband is considering taking a life insurance policy out to cover me if he dies. If he makes me the beneficiary of this policy and dies he does not want my children to benefit from this. How can he ensure that this does not happen?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Kim,

      If you are named the only beneficiary on his policy, then the life insurance benefit will only be paid to you should your husband die. What you do with the pay-out is up to you.

  • Derrick |

    Hi, my son, who was 28 passed away late last year and his mother and I have been divorced since he was young. He nominated both his mother and myself to receive his super (50/50). However, his mother has received all of his super and I received nothing. Is there anything I can do?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Derrick. I’m so sorry for your loss.

      A benefit can generally only be paid to the beneficiaries listed on your son’s policy. If no beneficiaries were nominated, the lump sum will generally go to his estate, where it gets divided according to his will.

      You might want to contact his Superfund and request the policy documents and inquire about their claiming process.

      Best of luck.

  • Tracey |

    Hi. My partner and father of our unborn child passed away with no will. We lived together etc, he also had an ex-partner but they were not legally divorced, and they also have a daughter. What happens to his life insurance and super etc?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Tracey. I’m terribly sorry for your loss.

      The lump sum benefit of the policy owner’s life insurance policy will usually go to the person(s) nominated as the beneficiary on the policy documents. If no beneficiary was nominated the benefit will generally go to his estate. In the event that he has not left a will, the benefit will generally be distributed to his closest living relatives. However, these legislations differ from state to state.

      You might want to first see if you can find his policy documents and then perhaps acquire some legal counsel to assist you. Best of luck.

  • Robert |

    I lost my father (heart attack) and sister 3 weeks apart (body found so declared dead later than actually was). House was ransacked to pay funeral expenses. I have a fair understanding of the will and how his meagre estate will be divided. Including debt owed to the family for help.

    I also know he had life insurance and that’s been paid to one of his brothers. Grew up been told it was mine, but I’m not listed as a beneficiary. This is despite having cared for him for the last 12 years, actually, have spent most my life with him. Yet I was shocked to find I’m not even cared for by him after I’ve been treated like a slave for so long. I do believe he took it out when I was a child and I’m 37 now. What rights do I have to a claim or is it tough luck?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Robert.

      I’m sorry to hear about your loss and all the difficulties you’re going through.

      In such circumstances, it might be best to seek legal counsel, as we only provide general advice. Best of luck.

  • Stacey |

    Hello. The father of my sons committed suicide 6 months ago but he had his life insurance for over 12 months, which allowed his life insurance to cover suicide. He named my sons, his mother and myself (ex-wife but remained best friends) in his suicide letter.

    I’m aware this isn’t a legally binding document and I was cut out of the initial decision but I made a letter of objection and they are going to include me in his super payout now but we are still waiting for his death benefit payment to be approved.

    I’m just wondering how long this process generally takes? I feel like after 6 months this should all be settled, but it keeps dragging on and honestly, it’s making the grieving process so much more difficult, especially on his mother. Thanks in advance.

    • SPECIALIST
      Anneke Van Aswegen |

      Hello Stacey. I’m so sorry to hear about your loss and all the delays you’re experiencing.

      Unfortunately, there is no specific amount of time to the claiming process, especially when insurance is held within a super fund.

      You might want to seek legal advice in such a situation. Best of luck.