Life Insurance Beneficiary Nomination
One of the most important decisions you can make when setting up your cover is who do you want to receive your money? When you pass away, your lump sum benefit needs to go somewhere – be it a family member, friend, charity, institution or a combination.
Published August 23, 2021
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You can feel confident that the lump sum benefit from your life insurance policy will go to the right person when choosing and nominating your beneficiaries at the time of your application. Be sure to regularly review the beneficiaries on your policy documents to ensure you’re still happy with the person(s) you chose.
Generally, you will not need to nominate someone to receive a trauma, TPD or income protection benefit as any benefit payable will generally go to the policy owner.
What is a beneficiary?
A beneficiary is a person nominated in your life insurance policy to receive any death benefits paid out when you pass away. They can be any person or entity who you would like your money to go to. It may be a spouse, a child, a trust account or an organisation. You can also nominate a company if you have a Keyman insurance policy.
Generally, you will nominate someone at the time of your policy application. However, this is reviewable and can be changed whenever you want.
Why do I need to nominate someone?
By nominating a beneficiary, you can have peace of mind knowing that your death benefit is going to the right person(s). A beneficiary nomination is legally binding and can generally not be contested. This is especially important when it comes to families who have been through a divorce or when there is some tension in the family.
Nominating a beneficiary in your life insurance documents may also help eliminate the time and financial constraints of waiting for the will to be read.
How to choose a beneficiary
You will generally want to nominate someone to receive your benefit when you apply for life insurance. However, you can change it at a later date.
When nominating a beneficiary, you’ll need to provide their personal details, for example, name, surname and contact information. If you’ve nominated more than one person, you’ll also need to provide which percentage of the money you want them to receive. For example, 50% to your spouse and 50% to your adult child.
Example of a beneficiary nomination form
How many people can I nominate?
Currently, there is no legal limit to the number of people you can nominate as beneficiaries of your life insurance policy. However, the industry standard is up to 5 persons. This number may differ between insurers.
It is also important to note that the more beneficiaries you choose, the longer your life insurance company could take to process the claim due to the increased level of complexity.
What happens if my nominated beneficiary has passed away?
If your nominated individual has passed away at the time of your death and the policy has not been updated to reflect this, then that portion of the the benefit wil generally go to the poliy owner (if different from the insured person) or the next beneficiary on the list (if policy owner and insured are the same person). If no other persons have been nominated your benefit will usually go to your estate and paid out according to your will.
What happens if I don’t nominate someone?
If you do not choose to nominate someone to receive your life insurance benefit, it will generally go back to the policy owner. If the policy owner and the insured are the same, the lump sum benefit will go towards your estate and distributed according to your will.
If you do not have a will, the lump sum benefit may go through letters of administration and be subject to relevant state legislation.
Review your beneficiaries
You should review your beneficiaries yearly. By regularly reviewing who your beneficiaries are, you can make sure your money goes to the right person.
This becomes even more important if you have more children or go through a separation, divorce or if you re-marry.
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Can a person still be a life policy owner / beneficiary even after 15 years divorced?
Hi Bruce, thanks for contacting us. To answer your question – Yes, a person will remain the policy owner and / or a beneficiary after a change of circumstances for example after a divorce. For example the wife may be the policy owner and the sole beneficiary when a policy is established on the husband’s life. Say a divorce occurs and she refuses to change policy ownership to her husband and as long as she continues to pay the premiums, the policy will remain in its current format with her as the sole beneficiary on her husband’s life. As you can see the Policy Owner has the control over the policy and therefore is the only person who can alter the nominated beneficiaries which some people may consider after a divorce or when there is tension in a family as generally the beneficiary cannot be contested.
Can you nominate a charity as a beneficiary for your life insurance policy?
Thanks for your question Jodie, the answer here is yes you can nominate a ‘Charity’ as a beneficiary on a life insurance policy. However, it is important that this is clearly defined and by this we mean that the Organization or Institution’s Name, Address, Registered Charity Number is accurately reflected on the beneficiary form. It may be worth speaking to the Charity Representative or Manager to obtain this. This is to prevent a potential conflict or dispute at claim time.
Can I nominate a company as my beneficiary for my life insurance policy?
Hi Sandie.
Yes, you can nominate a company as your beneficiary. However, the life insurance benefit may be tax accessible to the company. You should seek the advice of a tax specialist as there may be taxation consequences on the benefit payment you may not be aware of.
Remember, you can only nominate a beneficiary if you are the policy owner on the policy.
Can I nominate my grandson,( a British citizen) who is residing overseas with his mother (not married to my son) as my beneficiary? I have life insurance from TAL (not my super)
And if it’s possible, can I care of the benefits to my grandson’s mother? Our grandson is still a minor
Thanks
Hi Antonio.
Yes, you should generally be able to nominate your grandson as beneficiary even though he lives overseas. However, you’ll need to contact TAL directly to inquire about the tax implications when a payout is made.
Please note: Nominating a minor as your beneficiary could result in some difficulties, as he’ll usually only be able to access the payout when he turns 18 years old and the lump sum will not typically be paid to his mother unless she is nominated as your beneficiary. Instead, you might want to arrange that your life insurance benefit gets paid into a trust that will pay out to your grandson when he is of a certain age.
Can an individual find out if they are a beneficiary of a life insurance policy, after the insured has passed away?
Hi Heather.
It might happen that a person passes away without informing someone whom he has nominated as his life insurance beneficiary. To find out who is an insured’s beneficiary, after their death, you can generally contact the insured’s life insurance company and provide them with his/her details. It is the beneficiary’s responsibility to inform the insurer when the insured has passed away and provide all relevant documentation, for example, a valid death certificate. The insurer will then usually provide the nominated beneficiary with the claim forms that need to be completed.
If you do not know the life insurance company the insured was with and you’re unable to find their policy schedule, you’ll probably have to find his/her will or contact his/her lawyer for more information.