One of the most important things about setting up a life insurance policy is choosing who your money will go to.
Nominating beneficiaries can get a bit complicated, so we've created a guide that covers all the ins and outs of nominating and being a beneficiary.
Let's break down what you need to know.
Life insurance has three components; the policy owner, the 'life insured' and the beneficiary.
The beneficiary is a life insurance recipient who gets a payout when you pass away. This can be a person, multiple people or an organisation.
Life insurance through superannuation is a bit different, with more restrictions on beneficiaries.
Who's eligible to become a life insurance beneficiary?
Got life insurance or considering life insurance?
Now comes the part of deciding who gets the payout.
You can nominate anyone over the age of 18 to receive your death benefit payment.
If you want to nominate your children, the benefit (aka the payout) will only be paid to them once they turn 18.
Most policies let you have up to five beneficiaries, with many people choosing their partner and or children.
Who should be my beneficiary?
Simply put, it's up to you. A lot of people chose to name somebody who depends on their income, like their partner, children, parents or siblings.
Some people choose a close friend or business partner. Your beneficiary doesn't even have to be a person - it can be a charity or organisation.
If you nominate more than one person, you'll need to choose which percentage of the money goes to who. For example, 50% to your spouse and 50% to your child.
Here's 4 simple steps that can help you work out who you want to nominate:
List all the people who are financially dependent on you, what costs you want covered and who you want to help out.
Decide if you want the payout to go to one person, multiple people or an organisation.
Be crystal clear about who the payout will go to and what percentage they'll get.
Let your beneficiary know. Sounds obvious, but if you pass away, they'll need to make the claim.
What happens if I've been nominated as the beneficiary?
The policy holder should let you know that you're a nominated beneficiary.
If you have any questions, you can talk to them or give their insurer a call.
The claims process for death cover starts when the person insured passes away or gets diagnosed with a terminal illness (typically with less than 24 months life expectancy).
It can take a couple of months for the claim to be fully assessed and processed.
How does policy ownership work?
There's three life insurance terms you need to know here:
Policy owner (also known as the policy holder): the person who purchases and pays for the life insurance policy.
Life insured: the person who is insured by the policy.
Beneficiary: somebody who gets a payout if the life insurance claim is successful.
The life insured and policy owner can be the same person, or the policy owner can take out life insurance that covers another person -- for example, their parents or their partner.
The policy owner can also be listed as a beneficiary.
Policy owners are responsible for nominating beneficiaries and paying the life insurance premiums.
They can also make changes to the policy, even if they're not the life insured.Compare & Save
Can beneficiaries be updated after a divorce?
Yes. You can change your nominated beneficiaries at any point, as long as you're the policy holder.
Just get in touch with your life insurer for the right form and return it as soon as possible.
What if the beneficiary of a life insurance policy passes away?
If the beneficiary passes away before you -- or the life insured -- you'll need to update your policy.
Just ask your insurer for the "change of beneficiary" form to fill out.
If you don't update your policy and have no backup beneficiary, the benefit will usually go back to the policy owner.
If you're that policy owner and you pass away, this will be paid to your estate.
Is life insurance through super different?
Yes. The payout goes to your super fund's trustee.
The super fund will apply their own process as to how they distribute the funds.
The fund trustee has to make sure the conditions of release for the money have been met and determine who the correct beneficiaries are.
Speaking directly with your super fund and organising beneficiaries with them may help to avoid the risk of money not being paid to your preferred beneficiaries in this case.
Where can I find the best life insurance policy?
Compare Club can help with that. We compare policies across 10 of Australia's leading life insurers to find the most appropriate and affordable level of cover for you.
Our specialists understand all the complexities of life insurance and can make sure there's no hidden surprises or exclusions when you buy.
Choosing the right life insurance is paramount. And so is taking the time to choose your beneficiaries.
Doing both will ensure your loved ones are looked after financially when you're no longer around.
Comparing your policy options with us takes just minutes, and you can rest assured our specialists know what they're doing.
Just click below to get started.Compare & Save
This guide is of an informative nature only and not representative of Compare Club products. It should not be taken as medical or financial advice. Check with a financial professional before making any decisions.