A life insurance policy protects your loved against financial risks once you are no longer there to look after them yourself.
But who do you put in charge of receiving that pay out and ensuring that the money you leave behind is used according to your wishes?
In this article, we’ll help you with the facts so that you can make an informed decision.
How do you choose a beneficiary?
A beneficiary is the person who will receive your life insurance payment should you pass away. When choosing a beneficiary, it’s usually the person or people who are dependent on you and who will be financially most vulnerable without you.
- Revisit the reasons you have life insurance in the first place. Ask yourself: who is financially dependent on you? Which expenses do you want to be covered?
- How many beneficiaries? Do you want one beneficiary or multiple? Is there one person you want to entrust with all the money, or do you want multiple people to benefit from your policy?
- Plan B: In case your primary beneficiary should pass away, make sure you list a second person to whom the benefit will be paid.
- Take the beneficiary’s point of view. Be sure to consider how being your beneficiary might influence the relationship between other nominated (or un-nominated) people, and how each will react to receiving their designated share.
- Be specific. Merely naming "my husband or wife or children" as beneficiaries can lead to speculation and confusion. Be sure to provide details regarding the person's names and how much each should be entitled to receive.
Naming a beneficiary
Naming a specific beneficiary means that your benefit is not paid to your estate, but to that person.
Keep in mind that if your beneficiary has outstanding debts of their own, it might have to be paid off from your policy money and only then they will receive the remainder of the money. Also keep in mind that if you nominate a minor, they will only receive the full amount once they turn 18.
What happens if you don’t nominate a beneficiary?
If you don’t nominate a specific beneficiary, the policy pay-out will go to your estate and be managed as part of your will.
In this case, your policy money may be used to pay outstanding debts before it is distributed to the people in your will – which means your loved ones could miss out on the payment.
Keeping your beneficiary up to date
You should evaluate your beneficiary and policy whenever you experience a major life event – for example, purchasing a home, having children, getting married, or at the death of a loved one. Our life insurance is not something we often think about, but its important to keep in mind that the circumstances of our loved ones change over time, and you want to adapt the provision you make for them accordingly.
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A life insurance policy is designed to create a lasting legacy and protect those who rely on you when you’re no longer there to do it yourself. It’s always wise to discuss the finer details and make sure that you fully understand the process with an advisor that has your best interests at heart.
Chat to Old Mutual iWYZE today for an affordable, reliable life insurance option that is tailor-made to your needs. Get a quote here.
Old Mutual Life Assurance Company is an authorised FSP (FSP 703). Risk profile dependent. Terms and conditions apply.
Additional sources:
https://www.tal.com.au/slice-of-life-blog/four-things-to-remember-when-choosing-a-beneficiary
https://www.comparingexpert.com.au/life-insurance/beneficiary-policy-options/
