When you buy a retail or personal life insurance policy, an important decision to make is determining who will receive the benefit in the event of your passing. This article provides general information for these types of products and you should consult us to get personal advice based on your own circumstances and to allow for the particular product(s) you may hold.
Who receives the benefits from a life insurance policy ?
Generally, the policy owner will receive any terminal illness, Total and Permanent Disability (TPD), Trauma, and Income Protection benefits that become payable. How a life insurance (death) benefit is paid differs depending on whether its paid outside or within a superannuation ownership structure.
Outside super
For Life Insurance Cover held outside super, the benefit amount will be paid to a surviving policy owner or the insured person’s estate. Where a beneficiary has been nominated on a policy, they will receive the death benefit.
Inside super
Where cover is held through:
- A superannuation fund arranged by the insurer : The insurer will pay the benefit to the Trustee of the super fund, who determines who will receive the benefit in accordance with the governing rules of the Fund and superannuation law.
- Self-Managed Super Fund (SMSF) or approved superannuation fund: The insurer will pay the benefit to the trustee of the SMSF or approved superannuation fund, and they will determine who will receive the benefit in accordance with the governing rules of the SMSF or approved superannuation fund (as applicable) and superannuation law.
Nominating beneficiaries
How beneficiaries are nominated differs depending on whether the policy is owned outside a superannuation fund or owned by (within) a superannuation fund.
Outside super policy ownership
A nominated beneficiary is the person or entity you choose to receive the life insurance payout. You can name one or multiple beneficiaries, and you can specify the percentage of the benefit each will receive – all nominations must be in whole numbers and total 100%.
Common choices include:
- Spouse or partner: Often, people designate their spouse or partner as the primary beneficiary to ensure they can cover living expenses, mortgage payments, and other financial obligations.
- Children: Naming your children as beneficiaries can help secure their future, covering education costs and other essential needs.
- Trusts: Some policy holders prefer to set up a testamentary trust to manage the life insurance proceeds. This can be particularly useful if you have minor children or want to ensure the funds are used in a specific way.
Charities: You may choose to leave a portion of your benefit to a charitable organization, supporting a cause that is important to you.
Superannuation fund ownership
If the policy covering your life is owned by a superannuation fund, then a super death benefit can generally be paid only to the deceased member’s dependants defined under superannuation law as being a spouse (including de facto partner), a child, a financial dependant or an interdependent relation; or to the member’s legal personal representative (LPR), who is either the executor of the will or administrator of the deceased estate. If after making reasonable enquiries, a super fund’s trustee cannot find a deceased member’s dependant or LPR, it may be able to pay the death benefit to another individual if the fund’s governing rules allow it.
Why nominating a beneficiary is important
- Control and certainty: It ensures that the death benefit goes to the person or people you choose, providing peace of mind that your wishes will be honoured.
- Avoiding probate: Probate is a legal process where the court confirms the death of a will-maker and the validity of the will. Without a designated beneficiary, insurance proceeds and super death benefits become part of your estate and generally must go through probate, which can be time-consuming and costly.
- Tax efficiency: Life insurance payouts to a nominated beneficiary outside super are generally not subject to tax.
- Family harmony: Clear beneficiary designations can help disputes among family members about how the money should be distributed.
Updating your beneficiaries
Life changes, such as marriage, divorce, the birth of a child, or the death of a beneficiary, may necessitate updating your beneficiary nominations. It’s crucial to review your beneficiaries regularly to ensure your life insurance policy reflects your current wishes.
The claims process
When a claim is made, the insurer will require a death certificate and other relevant documentation to process the benefit payout. The process should be straightforward and compassionate, ensuring your beneficiaries receive the funds as quickly as possible.
This is general information and limited in its scope. If you are considering buying or replacing a Life Insurance policy then contact us to arrange a review for you. We can consider your individual circumstances, goals and needs and recommend a suitable insurer, product and structure to use. Experien work with several insurers and have extensive experience in helping to arrange claims.
At the time of writing, Life insurance and Financial Advice services are provided by Experien Insurance Services Pty Ltd (EIS) ABN 99 128 678 937 and Experien Financial Services Pty Ltd (EFS) ABN 32 631 346 757. EIS and EFS are a Corporate Authorised Representative (No. 320626 and No. 1274354) Count Financial Limited ABN 19 001 974 625, AFSL 227232. See our website for our Financial Services Guide and latest AFSL arrangements. Always read the Product Disclosure Statement issued by an Insurer before considering insurance.
