Life Insurance Beneficiary Nomination

One of the most important decisions you can make when setting up your cover is who do you want to receive your money? When you pass away, your lump sum benefit needs to go somewhere – be it a family member, friend, charity, institution or a combination.

Published August 23, 2021

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You can feel confident that the lump sum benefit from your life insurance policy will go to the right person when choosing and nominating your beneficiaries at the time of your application. Be sure to regularly review the beneficiaries on your policy documents to ensure you’re still happy with the person(s) you chose.

Generally, you will not need to nominate someone to receive a trauma, TPD or income protection benefit as any benefit payable will generally go to the policy owner.

What is a beneficiary?

A beneficiary is a person nominated in your life insurance policy to receive any death benefits paid out when you pass away. They can be any person or entity who you would like your money to go to. It may be a spouse, a child, a trust account or an organisation. You can also nominate a company if you have a Keyman insurance policy.

Generally, you will nominate someone at the time of your policy application. However, this is reviewable and can be changed whenever you want.

Why do I need to nominate someone?

By nominating a beneficiary, you can have peace of mind knowing that your death benefit is going to the right person(s). A beneficiary nomination is legally binding and can generally not be contested. This is especially important when it comes to families who have been through a divorce or when there is some tension in the family.

Nominating a beneficiary in your life insurance documents may also help eliminate the time and financial constraints of waiting for the will to be read.

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How to choose a beneficiary

You will generally want to nominate someone to receive your benefit when you apply for life insurance. However, you can change it at a later date.

When nominating a beneficiary, you’ll need to provide their personal details, for example, name, surname and contact information. If you’ve nominated more than one person, you’ll also need to provide which percentage of the money you want them to receive. For example, 50% to your spouse and 50% to your adult child.

Example of a beneficiary nomination form

How many people can I nominate?

Currently, there is no legal limit to the number of people you can nominate as beneficiaries of your life insurance policy. However, the industry standard is up to 5 persons. This number may differ between insurers.

It is also important to note that the more beneficiaries you choose, the longer your life insurance company could take to process the claim due to the increased level of complexity.

What happens if my nominated beneficiary has passed away?

If your nominated individual has passed away at the time of your death and the policy has not been updated to reflect this, then that portion of the the benefit wil generally go to the poliy owner (if different from the insured person) or the next beneficiary on the list (if policy owner and insured are the same person). If no other persons have been nominated your benefit will usually go to your estate and paid out according to your will.

What happens if I don’t nominate someone?

If you do not choose to nominate someone to receive your life insurance benefit, it will generally go back to the policy owner. If the policy owner and the insured are the same, the lump sum benefit will go towards your estate and distributed according to your will.

If you do not have a will, the lump sum benefit may go through letters of administration and be subject to relevant state legislation.

Review your beneficiaries

You should review your beneficiaries yearly. By regularly reviewing who your beneficiaries are, you can make sure your money goes to the right person.

This becomes even more important if you have more children or go through a separation, divorce or if you re-marry.

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