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Our lives are always changing. At different times in our life we have different people depending on us for different things. This means that we always need to make sure the right people are named as beneficiaries on a life cover policy. That way, they will have financial assistance when we are no longer around.
It’s easy to name your beneficiaries when you first take out your policy, and then not think about it again. However, you need to review the beneficiaries on a regular basis. Here are some tips and guidelines on who to name as a beneficiary on your life policy.
Why are beneficiaries so important?
Your beneficiaries who are named in your policy are the ones who will receive the payout of the sum assured on your death. Remember that a life policy is a legal contract, so if someone is not named as a beneficiary, they won’t receive any payout from the policy, even if they depend on you for financial support. It’s crucial to carefully select the right beneficiaries for life insurance to ensure that your intended recipients receive the benefits.
Who should you name as a beneficiary?
Anyone who you support financially or who would be financially distressed on your death, or who you wish to leave a legacy to. We’ll look at each of these in more detail.
Financial support
Children
The people who most often depend on us for financial support are our children. We feed, house, clothe and educate our children, giving them a good start in life.
Children under 18 years cannot legally be paid a pay-out from an insurance policy, but you can set up a trust in your will to make sure they benefit. When you die the proceeds are paid into the trust and trustees pay expenses from the trust. You should name your children as beneficiaries and include details of the trust in your will.
Alternatively, you can name your spouse or partner or another family member you trust as beneficiary with the express instruction that they use the funds to care for your children.
Spouse or partner
Many people rely on a spouse or partner for financial support. This can be anything from one partner paying the bond, to sharing the monthly grocery bill. If your spouse or partner relies on you for financial support, you should name them as beneficiary so their lifestyle can continue when you are no longer around.
Parents, siblings and extended family
You might care for your parents, or your siblings or their children. Without this financial support they would struggle to make ends meet, so naming them as a beneficiary would make sure they can take care of some expenses.
Remember if you support someone who is physically or mentally disabled you can set up a special trust for them so that they will be taken care of financially on your passing. Special trusts can only be set up for those who need assistance for life.
Care in kind
There are many ways we care in kind for our family and loved ones. We might have family members living with us in our homes, or provide free transport to school, sometimes we even employ our family members and loved ones.
While this support may not be giving money directly, there is a financial consequence if you are no longer around. Think about who you support in this way and consider naming them as a beneficiary on your life policy.
Leave a legacy
Because so many of us take out life insurance when we have young families, when we are older and our children are taking care of their own expenses, we wonder how much value a life policy has.
The answer is a lot!
First of all, you’ve spent years paying premiums so you don’t want those to go to waste – which would happen if you cancelled the policy. And secondly, a financial windfall is always welcome and a great way to deal with the extra expenses all of us encounter.
So even if your family no longer depends on you financially, your life cover pay-out could give them the funds to renovate their home, buy a new car, buy a business, or pay their children’s school fees.
You might also decide to name an institution such as your favourite charity as beneficiary, making sure someone in need benefits from your life policy.
You can name these people or institutions as beneficiaries on your policy. If you have more than one beneficiary, you can specify an amount or a percentage each beneficiary will receive.
Review your beneficiaries at least once a year
Updating beneficiaries
Take an hour or so each year to check who is named as a beneficiary on your policy. Next, look at how your life has changed in the past year and if you need to add a beneficiary or take a name off your policy. You should also do this if there has been growth in your life such as you married or have a new baby.
Contact us or your financial advisor if you want to change the beneficiaries on your policy.
Be sure to name a beneficiary
Remember if you don’t name a beneficiary the pay-out will be paid into your estate, may be subject to tax and can take a long time to reach your heirs. This is because the heirs are only paid out once all the assets of the deceased are assessed and all debts paid. If the debts exceed the assets your heirs may not receive anything. However, if your heirs are named as beneficiaries on your life insurance policy the pay-out will go directly to them.
Your life cover counts
Your life cover is one of the legacies you can leave to your loved ones. It can help them manage the big and small expenses and allow them to continue living a good life. Naming those you care for as beneficiaries is one way to make sure your life insurance pay-out will benefit those who matter and need it most.
