Having no life insurance cover is like living your life with no seatbelt on. The financial effects of you not being around will not affect you, but it will affect your loved ones. If you are in the process of getting a life insurance cover you will realise that you have to choose someone who will receive the benefit? We have broken down how you can go about choosing someone who will receive the benefit of your life insurance policy so that those you care about remained protected even if you are no longer around.
The difference between a nominated beneficiary and the insured
When you take out a life insurance policy it is your life that is covered. This essentially means you have the power to choose how much cover you would like to have and who gets covered in order to sustain their financial future when you have passed on. A nominated beneficiary is a person or people who your life insurance policy will pay out a lump sum to. This will allow your dependents to continue life without the financial burden by helping them pay off things such as:
- Funeral costs
- Legal fees
- Ongoing expenses
- Mortgage repayments
You get to decide who receives the benefit
People usually list their dependents as someone who will receive the benefit of their life insurance policy. This could be in the form of your partner, children and relatives. There will be times where everything is not clear-cut, which might make choosing a beneficiary tricky. If you are struggling to find someone who will receive the benefit you can start by asking yourself a few questions such as:
- Who counts on you for financial support?
- Who would you like to give your benefit to in order to take care of your debt?
- Who will cover the costs of my funeral?
- Who else relies on me for financial assistance?
Your beneficiaries are not cast in stone
Life goes in stages and it is constantly shifting. This is why life insurance policies are flexible for you to add changes should you need to. You may have taken out your life insurance a while ago and perhaps included one beneficiary or none.
Since then you might have increased in numbers in terms of family life or lost a few loved ones along the way. You still have the opportunity of re-evaluating your policy to add or remove beneficiaries. This is why it is important that you constantly update your policies to align with your life.
If you happen to be married and have a child in the process and you pass on before the child turns eighteen, the benefit will be paid to their legal guardian. Reading your policies terms and conditions is vital and will help you avoid any kinks on the road.
There are rules
Life insurance will differ from insurer to insurer. If you plan on paying for your policy through your superannuation fund it is important that you read and understand the rules that come with the nomination of beneficiaries. The claims process will also differ; therefore you need to speak to your insurer beforehand to avoid any complications later on.
What if you don’t have any beneficiaries to choose?
In some cases, you might find people who do not have any dependents or family to entrust their life insurance policy benefit with. Choosing a charity as a beneficiary is usually another route that people select as a beneficiary of their benefit. If you have multiple charities in mind you can divide a set amount for each charity on your policy.