Much like writing a will, owning life insurance requires you to designate the proceeds of your policy to a beneficiary. This could be whoever you wish to receive financial support such as your spouse, children or close friends and family.
However, before you designate a beneficiary, it's important to understand the rules and implications associated. We'll look at some of the key questions and what you can do as the owner of the policy.
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What is a life insurance beneficiary?
A beneficiary is someone you have chosen to receive part or full proceeds from your life insurance policy upon your death. This can be a person, organisation, or trust, and they will receive the funds directly without going through the probate process, which can often delay the distribution of funds.
Popular choices for beneficiaries can include:
Spouses or long-term partners
Children
Grandchildren
Siblings
Parents
Other family members
Guardians
Close friends
Business partners
Charities
Although a child can be selected as a beneficiary, the policy will need to be written in trust, as they won't be able to access the funds until they are 18 or older. You can, however, choose another beneficiary such as your spouse, a close family member or a guardian to receive the money so it can be used to support your children.
Are there specific rules for naming a beneficiary?
Each insurer will have their own specific guidelines for naming a beneficiary, though typically:
You must name at least one beneficiary when taking out a life insurance policy
The beneficiary must provide proof of death to make a claim, such as a death certificate
The payout must be deposited into a UK bank account – though a beneficiary can be based abroad.
How many beneficiaries can you have on a policy?
You can have multiple beneficiaries, so long as the money from the policy is shared out between them as a percentage.
For example, you may wish to leave your spouse 50% of the payout and then 25% each to your two children to receive once they are 18.
The size of these percentages is directly up to you and will depend on your family's situation. If you have young children, you may decide to leave the entire amount to your spouse so they can use the funds to support your children directly or towards paying off a mortgage.
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Can you change the beneficiary of a life insurance policy?
There may come a point in which you wish to change the beneficiary of the policy, such as if someone has died, your relationship has changed, or they’ve already inherited money from elsewhere. The good news is you'll be able to make changes to the policy, usually by contacting your insurer directly.
The same applies if your policy is written in trust, though the process may involve additional steps to ensure that the changes are legally recognised and documented.
What happens to a policy with no beneficiary?
If you fail to name a beneficiary on your life insurance policy, the proceeds will typically be paid out into your estate. If you have a will, the person named as the main beneficiary of the estate will receive the funds.
If you don't have a will, your estate (including the policy) will be distributed by the courts or to your next of kin. We strongly recommend naming a beneficiary on your life insurance policy so that your family receives the funds with limited hassle.
What if the beneficiary dies before the policyholder?
If your primary beneficiary has passed away once you die, the payout will go to their estate and be distributed per their will. You can also name a contingent or secondary beneficiary who will receive the money if the original beneficiary has passed at the time of your death.
If you are still alive when the primary beneficiary passes away, you can select someone else to receive the money.
Choosing a contingent beneficiary is a good idea especially if your primary beneficiary is your spouse. In cases such as a death from a car accident, you and your spouse may both be in the vehicle so there would be no one to receive the funds or change the policy. Whereas a contingent beneficiary would then be able to receive the payout.
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How do I know if I'm a life insurance beneficiary?
If you are the beneficiary of a life insurance policy, it's likely that the policyholder would have told you once they set up the policy. However, if you're unsure, there are several steps you can take to find out:
- Ask the Policyholder: If the policyholder is still alive, they should be able to confirm whether you are named as a beneficiary on the policy.
- Check with the insurer Companies: If the policyholder has passed away, and you are trying to make a claim, you can contact the insurance company directly. They may require certain information such as the policyholder's name, date of birth, and possibly other identifying details to verify if you are listed as a beneficiary.
- Look for Documentation: If the policyholder kept records or documents related to their life insurance policy, such as a copy of the policy itself or any correspondence with the insurance company, you might find your name listed as a beneficiary there.
How long does it take for a policy to pay out?
Once a claim on your policy has been made, your beneficiaries should receive a payout within 30 days. In some cases, where the cause of death is under investigation or if there are any discrepancies in the claim, it may take longer for the insurer to process the payout.
To make a claim, your family/loved ones will need to provide:
Name of the policyholder
Policy number
Sometimes a policy document (such as a certificate of insurance issued when the policy was purchased)
Cause of death (as explained on your death certificate)
Their identity and relationship with the policyholder
So long as the cause of death is covered under the policy guidelines, a claim should be accepted. However, if the cause of death was a result of criminal activity or suicide within a certain period after the policy was issued, there may be exclusions that could affect the payout.
If you have any questions about setting up your life insurance policy or choosing a beneficiary please speak to one of our advisers. They'll be able to provide detailed advice to answer any queries you have.
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01392 436193
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