Find out who can get your life insurance payout and the rules around beneficiaries with Savvy.
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Choosing the beneficiaries of your life insurance payout is one of the biggest decisions you’ll make when you purchase a policy. When you’re deciding what to do, it’s essential you understand the rules around beneficiaries, which is where Savvy can help.
Find out how beneficiaries are nominated and the regulations around who has power over your policy after you pass away right here with Savvy in our informative guide.
Life insurance beneficiaries are people, a group of people, an organisation or a trustee you name to receive your life insurance policy payout in the event of your death or diagnosis of a terminal illness.
When you apply for a policy, you’ll be asked to choose a beneficiary, or beneficiaries, who will receive your payout if you die. In most cases, people will choose their spouse or long-term partner, children, best friend or parent to receive their life insurance payout.
The rules around beneficiaries mean you can name one, two or more people to receive your money. If naming more than one beneficiary, you will need to nominate the percentage of the funds each recipient will receive. Primary beneficiaries will be the first to receive funds, and contingent beneficiaries will only receive funds if the primary beneficiary dies or becomes disabled.
Picking a recipient or recipients for your life insurance payout might seem like a straightforward process, but there are a few factors to think about before deciding. These include:
Remember why you took out the policy
Consider the reasons you're looking for coverage. Is it necessary to leave your family with financial security when you pass away? If that's the case, your partner or spouse and/or children may be your first choice of recipient. However, if you're running a company with others, you may wish to give your business partner or partners a financial safety net to ensure the business survives after you've gone. Aim to choose a life insurance policy and a beneficiary who will allow you to achieve your objectives, even after you die.
Be aware of the implications if nominating someone under 18 years of age
It may seem common sense to leave your life insurance policy to your children to ensure they are looked after in your absence. However, if your child is the intended recipient of your life insurance payout, they must be over 18 to receive the money. If they’re under 18 at the time of your death, the funds may be held by a legal guardian or trustee until they reach maturity, or funds can be allocated by the trustee to be used for the benefit of the minor.
Think about your nominated individual’s life situation
Your beneficiary's life circumstances may have a significant role to play in your choice. For example, if you name a family member who receives disability payments as your beneficiary, the lump sum may push them over their low-income threshold and leave them worse off in the long term. You should seek qualified legal advice before deciding how you distribute your life insurance benefit in the event of your death.
Be specific
You should also be careful when naming beneficiaries of your life insurance, and ensure all their contact information is kept up-to-date. For example, if one of your children passes away, you need to decide if you want your other child to be the recipient of your payout, or would you prefer the money goes to the deceased child's family (if they have one).
Keep your policy up-to-date
Failure to update the beneficiaries on your life insurance policy is a common mistake that is frequently made. For example, imagine you're unmarried when you purchase your policy, and decide to make your parents the primary beneficiaries. If you marry and don't update your policy, your parents would still get the insurance money and your spouse could be left without anything from your policy if you haven't updated your policy's details. If you look at your life insurance policy every year, you can ensure the beneficiary designation is updated.
Doing a regular review of your life insurance policy will ensure your details are kept up to date, particularly if something significant has taken place in your life like a marriage, birth or death. Some of the life events which could trigger a beneficiary update include:
Most professionals will say it’s a good idea to review your policy every 12 months or when a close family member passes away.
If you pass away and have no beneficiaries listed on your life insurance policy, your payout will be paid directly into your deceased estate and will be distributed as per your will. However, if you’re alive and make a claim on the grounds of critical or terminal illness, you’ll receive your payout if you haven’t named any beneficiaries.
A beneficiary named in a life insurance policy can't make changes to the policy unless they’re also the policy owner. They must file a life insurance claim and wait for their portion of the payoff to be processed and arrive in their nominated bank account. You may want to include this information in your will if you’re the policyholder.
Disclaimer:
Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.
Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.
For any further information on the variety of insurers compared by Compare Club or how their business works, you can read their Financial Services Guide.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
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© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
