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Life insurance beneficiaries explained

What is a life insurance beneficiary, and who can be one? We answer all your questions here.
Our guides are for information only. They not describe Vitality products or services. 

What is a beneficiary?

A beneficiary is the person or people who receive your life insurance payout when you pass away. You can choose whoever you want to be the beneficiary. Sometimes people assume the beneficiary has to be a spouse or children. But it can be anyone – from a friend to a relative or someone who you want to support.

If you have more than one beneficiary, you have to decide exactly how much each will receive. For example, if you have a marital partner and two children, you might give your spouse 50% and each of your children 25%.

Your beneficiaries can then use the money for anything they wish. Very often, life insurance policies pay out faster than the money from your estate. This means they could quickly access the money. It can also be used for anything they would like, such as day to day living expenses.

How can life insurance be used in estate planning?

Your ‘estate’ is the sum of all the things you own. When you write a will, you need to decide what will be done with your estate when you die. Many people choose a loved one to be their life insurance beneficiary, but you can choose your estate to be a beneficiary, too.

There are a few reasons why you might do this. If you have outstanding debts, such as a mortgage, the payout would be sent to your estate. That could clear your mortgage and mean your family don’t have to immediately sell the property. Or, you could choose to use some of the money for funeral expenses. You might also want to make sure some of the money gets sent to a charity you support. 

Do you need a will for life insurance?

No, you don’t need a will for life insurance. When you apply for life insurance, you have to choose a beneficiary (or beneficiaries) though. The money from your life insurance policy will be paid to that person (or people). This is separate from your will.

Life insurance and wills can get complicated. It is normally best to mention your life insurance policy in your will. Explain who the beneficiary is and what you would want them to do with the money. This will make things a lot clearer for your loved ones, and it can also reduce the risk of disputes.

Can a will override a life insurance beneficiary?

No, a will cannot change a life insurance beneficiary. Your will says what you want to happen with your estate. That’s things like:
  • Property
  • Investments
  • Bank accounts
  • Art collections
  • Jewellery
  • And other belongings.
Your life insurance is separate from your will. Nothing in your will can change your life insurance beneficiaries once you’ve passed away. Sometimes you might want to change who receives your money. If you have a will and a life insurance policy, you’d have to update both to reflect this.

Who can be a life insurance beneficiary?

Life insurance beneficiary rules mean that anyone can be the named recipient. It is common to choose a marital partner or children. It can also be a boyfriend/girlfriend, grandchildren, friends or siblings. You could also choose organisations like charities. 

Deciding who your life insurance beneficiary will be is a big decision. Sometimes it’s obvious who you’ll choose, but other times it’s worth thinking about. Think about what receiving that money will mean for different people. Receiving a payout is usually a positive, but it can cause difficulties too. For example, it could cause a lot of conflict. 

If the life insurance beneficiary is a minor, they can’t receive the money until they’re 18. You could think about putting life insurance in trust until they’re older. Their parent or guardian could use it to help with daily living costs or education. 

What happens to life insurance with no beneficiary?

Most life insurance policies ask you to choose a beneficiary. But you don’t have to choose one. If you haven’t named a life insurance beneficiary but have written a will, the first person on your will gets the payout. 

If you haven’t written a will either, the life insurance policy is paid into the estate. It then gets distributed through the courts. Your spouse, children and living family are your next of kin. They will then receive the funds from the estate, including the life insurance money. 

Who gets the life insurance payout if the beneficiary is deceased?

If the life insurance beneficiary has died, your money will be paid into your estate. It’s then distributed in line with your will and to your next of kin. Life insurance beneficiary rules also let you name contingent beneficiaries. If your default beneficiary for life insurance dies before you, the second person receives the payout. 

Changing beneficiary on a life insurance policy

You might decide you want to change the beneficiary of your life insurance. This might be because your relationship with them changed. Or maybe they inherited money from someone else, and no longer need the money. It might be possible to change the beneficiary on your policy, but this depends on the terms and conditions.

Life insurance policies let you choose between revocable and irrevocable beneficiaries. If the policy is revocable, you simply need to tell the insurer you’ve changed your mind. But if it’s irrevocable, it’s harder to change. You’ll need to get the written permission of the beneficiary if you want to remove them. 
Irrevocable beneficiaries exist to stop people from being manipulated to change their policy. This is important if the policy-holder is no longer able to make their own decisions. 

Do life insurance companies contact beneficiaries?

No, the life insurance company won’t know that the policy holder has died. It’s the responsibility of the beneficiary to get in touch with the insurer. If you’re taking out a life insurance policy, it’s a good idea to tell your beneficiary and give them your policy number. They will have to contact the provider when you pass away and provide evidence of your death. 

How is life insurance paid out to beneficiaries?

Life insurance beneficiaries normally receive the payout in a single lump sum. They first need to tell the insurance provider you have died and provide a death certificate. They’ll then need to complete a claim form. The payment is often made directly to their bank account, or it may be sent to the executor of your will. If the money is being sent to a minor, it may be paid into a trust.

Read the terms and conditions of your policy to make sure you understand the process. If you’re unsure, ask the provider. 

Putting life insurance in trust

A trust is an agreement where you ask another person to manage your assets when you can’t. They are the ‘trustee’ and they then manage that money for the beneficiaries. 

You can put your life insurance payout into a trust. This can be a good idea if you want the money to go to a child. The trustee manages the money until the beneficiary turns 18, and it can be spent on things like education and day to day living costs. 

There are benefits to paying your life insurance into a trust:
  • The money is not counted towards your taxable estate
  • The beneficiary doesn’t pay inheritance tax on it
  • The beneficiary may also receive the money faster. It does, of course, mean you have to trust the trustee to do what you want with the money. 
Putting life insurance in a trust can be complex. So, it’s always a good idea to get independent advice. 

Find out more about our life insurance here or get a quote.

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