A beneficiary is the person who will receive your life insurance payment should you pass away.
When choosing yours, it’s important to think about who would be most financially vulnerable without you in their life. For most people, this is their spouse or children.
Nominating a beneficiary may seem straightforward, but there are a number of things to be aware of and plan for.
- If you don’t have a beneficiary
If you hold the policy in your name, your benefit will go to your estate and be managed as part of your will.
If you have outstanding debts when you pass away, your benefit may be used to pay them before it is distributed to the people named in your will – this means your loved ones could miss out on the payment.
- Naming a beneficiary
Naming a beneficiary ensures your benefit is not paid to your estate and goes directly to the person you nominate.
It’s important to consider that if your beneficiary has any debts the proceeds might be used to pay them off. As well as this, keep in mind that if you nominate your children, they will only receive the full amount once they turn 18.
- Having multiple beneficiaries
You can easily name multiple people as beneficiaries to your policy – you can check with your insurer as to how many beneficiaries can be named on your policy.
If you do decide to choose several people, it’s useful to designate a percentage of the payment to each person, as opposed to a specific amount (as this may change).
You should also consider having a contingency beneficiary, should a primary beneficiary pass away before or around the time of your passing (for example, in an accident).
- Keeping your beneficiary up to date
You should evaluate your beneficiary and policy at any major life event – for example, purchasing a home, having children, getting married, or at the death of a loved one.