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A beneficiary typically refers to a person eligible to receive distributions (payments) from a life insurance policy, trust or will. Beneficiaries can be either named specifically on a policy, or have met criteria that have made them eligible for any specified distribution.
There’s a few options when choosing beneficiaries...
There can be just one, or several beneficiaries; and there’s a few different ways that any distributions received could be split.
One way is per head, in which case amounts are split equally between all beneficiaries, often the children of the deceased.
Another way is to set up a trust for some (or all) of the money in your policy (often used when it comes to benefitting grandchildren).
Writing your policy in Trust
If a trust is named as the recipient of a life insurance payout, the life insurance proceeds automatically go into the trust, however if you were to decide to take this route, it’s important to find responsible trustees.
What is a Trust?
A trust is a legal arrangement, under which the policy owner creates a legal framework (the trust) to hold assets for third parties. The three key parties to a trust are the settlor/s (those who own the policy), the trustees (who manage it) and the beneficiaries (who benefit from the trust).
The trust is run or managed by the trustees. It is then the trustees’ responsibility to ensure the beneficiaries receive the benefit of the policy, in the event of a claim. When you put a policy into trust, you effectively give it away to the trustees to look after for the beneficiaries. Usually, the Settlor (policyholder) will also be a trustee whilst they are still alive, so will retain some control, but any actions will need to be signed off by all of the trustees.
So, make sure any trustees are people who will protect your interests in the long term.
Why do people put their policies into trust?
1. Inheritance Tax
The proceeds of a policy in trust may not be subject to Inheritance Tax.*
2. Probate
The policy benefit does not go through probate when it has been written into trust and therefore can be paid out more quickly.
3. Protection
The policy benefits may have better protection from creditors of your estate should it be placed in trust.
Bear in mind though, placing a policy into trust is an ‘irrevocable’ act. Once you’ve done it, you can’t change your mind later on and withdraw it from the trust.
However, it’s important to remember that whilst a policyholder is still alive, certain elements of the policy can be changed. This includes beneficiaries, so it’s a good idea to look over any policies you may have at least once a year.
At Cavendish, we’re committed to providing our customers with all the information they need to make an informed choice about what kind of policy is right for them.
Before You Buy
Before you commit to a life insurance purchase, you’ll need to understand how much life insurance you’ll need, keep in mind how comfortable you’d want your loved ones to be if you were no longer around.
Choosing The Best Policy For Your Needs
It’s worth understanding the differences between the 2 main types of life insurance, being 'term' life insurance and 'whole-of-life' insurance.
‘Term’ life insurance policies run for a fixed period of time (known as t f the policy. There’s no lump sum payable at the end of the term.
‘Whole-of-life’ insurance policies pay out regardless of when you die, as long as you keep up with your premium payments.
Naturally, these policies are typically more expensive than term insurance policies since as long as you keep paying your premiums, the insurer will always have to pay out, whereas you may outlive a term insurance policy.
TIP: Whole-of-life insurance is also known as life assurance by many insurers.
One of the main benefits of whole-of-life insurance is that it can help your family deal with any bills associated with inheritance tax. It also may appeal to you if you’re determined to leave some form of inheritance to your loved ones, or if you want to help with your funeral costs.
You can also purchase either type as a ‘single’ or ‘joint’ policy.
‘Single’ policy life insurance covers just one person and if the policyholder were to die during the term of the policy, their loved ones would receive a payout. If you and your partner were to decide to take out two separate ‘single’ policies, then a payout could then be claimed for each policy if both policyholders die within the term.
‘Joint’ Life Insurance covers two people on a single policy and means there’s only one monthly premium to pay. Some people find this simpler to manage and you’ll only need to complete one application, but you would have to answer questions for both policyholders.
Already Have A Policy?
It’s great if you already have a policy in place, however, are you sure that it still meets your needs? Could you be getting a better deal? If you’re unsure, the team at Cavendish may be able to help get you a quote for cheaper life insurance.
Get A Quote Online Today
Once you’ve given this information some thought, it’s then really easy to arrange and compare online life insurance. Simply enter your details into our site and we’ll ask some questions to generate quotes so you’ll be able to see what policy works out best for you.
Prefer to phone?
Sometimes, it’s easier just to give us a call and speak one-to-one with one of our insurance specialists, who can guide you through the process and support you in choosing the best cover for you and your family.
Call us on 01392 241 850 today to find out more...
