Have your circumstances changed since you applied for life insurance? You might have recently married, had your first child, taken on a mortgage, started a new job, or received an inheritance.
It could be worth reviewing your insurance policy and updating who will receive the benefit payment.
It is important that your insurance policy(ies) are not “set and forget”.
Over time, your cover might increase unreasonably in price, or it might not have the best terms available in the marketplace. Or, as discussed, your personal circumstances might have changed.
Make sure the money goes to the right person
It is important to consider whether the people you wish your benefit to go to are the ones who will actually receive it. This is not guaranteed, because if you are the sole policyholder and you have not made it clear who your beneficiaries are to be, then the life insurance benefit could be paid to your estate in the event of your death, to be distributed by your executor.
If you have been married more than once or have children from a previous marriage, this could complicate matters and lead to monies being distributed at the executor’s discretion. The benefit could also be used to pay off any debts the estate owes before your beneficiaries see any of it.
Should I nominate a beneficiary?
One way to ensure that the right people receive the proceeds of your life insurance is to choose a policy that allows you to nominate your beneficiaries.
As the owner of the policy, you can nominate which beneficiaries are to receive what proportion of the benefit (must add up to 100% in total). This method allows you to remain in total control of the policy and also to direct the proceeds to the right beneficiaries.
The only drawback with this is if your policy is held within superannuation, as superannuation law states that the beneficiary can only be a dependant or your estate executor and that person will receive all of your superannuation, including your life insurance.
Who Should You Nominate?
Most people nominate their spouse or their children, but it is completely your choice. If you wish to, you can nominate your grandchildren, your favourite niece, or your best friend; it is at your discretion.
What If I Don’t Nominate Anybody?
If you don’t nominate anybody, the payout will automatically be distributed to your estate. Some policy holders have a Will stating who they wish to receive the money in case the elected beneficiary passes away at the same time. That leaves no room for legal battles or confusion over where the money goes.
If your beneficiaries also pass away with you, the government organises all of your remaining debts to be paid off with the life insurance proceeds. The government will then ensure your close family is looked after with the remaining funds. People who are considered include your spouse, children, parents and siblings.