Choosing a life insurance policy is an essential part of estate planning that most might leave until it's too late. After you find a policy that works for you and your family, you'll need to decide who your life insurance beneficiary will be and the role they play.
What Is A Life Insurance Beneficiary?
A life insurance beneficiary is a family or friend who will receive your life insurance payment when you pass away. When choosing someone as your life insurance beneficiary, you want to think about who you want to financially take care of after you pass away. Most people will typically choose their partner, spouse or children.
What Happens If You Don't Have A Beneficiary
Suppose you don't have a beneficiary for your life insurance, but you hold the policy in your name. In that case, the benefit will automatically become a part of your estate, and the executor will manage it as part of your will. However, this doesn't mean it automatically goes to your beneficiaries. For example, the executor of your estate may choose to use the benefit to pay outstanding debts before distributing it to your beneficiaries.
Who Can Be A Life Insurance Beneficiary?
Anyone above the age of 18 can be the beneficiary of your life insurance benefits. When you choose to name a beneficiary, it ensures your benefit goes directly to the person you nominate and not to your estate. Here are a few things to consider before choosing someone:
- Do they have any debts they might use to pay off with the benefit?
- What is their relationship to you?
- Minors will receive the total amount after they turn 18
Can You Have Multiple Life Insurance Beneficiaries?
Generally, you can have more than one life insurance beneficiary on your policy. However, it's important to check with your insurer just how many you can include. If you choose more than one, it's helpful to designate a percentage of the payment to each person instead of a specific amount.
The value of your life insurance changes over time and can drastically change from when you choose the beneficiaries to when you pass away. Finally, consider adding a contingency beneficiary, should the primary beneficiary pass away before or at the same time of your passing.
Binding Vs Non-Binding Beneficiary
If your super includes life insurance, you'll need to nominate a beneficiary. Typically you have the choice to make a binding or a non-binding nomination.
- Binding nomination is a legally binding statement that declares to your insurer who the benefit must go to when you pass away.
- Non-binding nomination is not legally binding, which means your insurer will only consider your nomination when making the life insurance payment on your behalf.
Update Your Life Insurance Beneficiary
You should evaluate the beneficiary and policy of your life insurance after any significant life event. For example, a major life event could include purchasing a home, having a child, getting married or after a loved one passes away. Having life insurance beneficiaries up to date ensures your loved ones are taken care of financially if something happens to you.
To start planning your estate, build your Will online with Willed.
For helpful reading, check out these guides: