What is a Life Insurance nominated beneficiary?
A Life Insurance nominated beneficiary is the individual nominated by the policyholder who receives the benefit (the sum insured) in the event that the policyholder passes away. The policyholder can nominate more than one individual as a beneficiary, or can nominate their estate as the beneficiary if they choose to do so.
Beneficiary nominations for Life Cover are legislated under the Insurance Contracts Act of 1984.
- Primary beneficiary: The primary beneficiary is the individual who will receive the lump sum when the policyholder dies. Should the primary beneficiary die before the death of the named insured they will not receive the proceeds of the policy.
- Contingent beneficiary: Also referred to as the secondary beneficiary, the contingent beneficiary can be nominated to receive the benefit for the sum insured by the policyholder, although they are only entitled to the proceeds of the policy if the primary beneficiary dies before the life insured.
Who is eligible to become a Life Insurance beneficiary?
A policyholder will typically nominate a spouse or close family member as a beneficiary for a life insurance benefit.
However, any adult aged over 18 can be nominated as a Life Insurance beneficiary. Trusts or organisations can also be valid nominations as a beneficiary. Examples of a beneficiary can be:
- Spouse or long-term partner
- Children, your spouse’s children or your adopted child
- Parents or siblings
- Close friend
- Business partner
Updating beneficiaries after a divorce
In the unfortunate event of a marriage ending in divorce, it’s important to carefully re-evaluate all existing polices and update nominated beneficiaries to see that the proceeds are distributed to the correct individual.
Nominating a minor
A nominated beneficiary must be over the age of 18 to receive payment directly. If they are under this age, the proceeds will be passed onto a nominated trustee or legal guardian until they reach 18. If the court is required to appoint a guardian or trustee this may come at a cost so it’s important that the policyholder takes the necessary legal measures to notify all parties involved.
How is a Life Insurance beneficiary notified?
A beneficiary is chosen at the time of application for life cover. It is the responsibility of the policyholder to inform their nominated beneficiary or beneficiaries of their inclusion in the policy.
A legally binding will cannot override your life insurance beneficiary nomination.
If you fail to nominate a Life Insurance beneficiary, all insurance proceeds of the policy will be paid to your estate and will be distributed as per your final wishes in your will, assuming this is up to date and accurate. If you do not have a will stating your wishes for distribution of your assets after your death, your estate will be subject to state intestacy laws, which can become a financial burden on your dependants.
You should consider estate planning when it comes to considering how you would like your assets distributed in accordance with your will.
The proceeds of your life insurance policy will go to your nominated beneficiaries and typically will not be distributed in accordance with your will, unless of course you have not nominated any beneficiaries or you have nominated your estate as the beneficiary of your life insurance policy.
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