Life Insurance Beneficiary Rules

If you’re considering taking out a life insurance policy but feel unsure about what a beneficiary is or what the rules are regarding how many beneficiaries you can have, this article is for you.

Life insurance can be a great way of protecting and providing for your loved ones if you pass away. And, having paid your premiums, you’ll want to be sure that the right beneficiaries inherit your money.

In this guide, we answer some commonly asked questions about life insurance and beneficiaries including:

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What is a beneficiary for life insurance?

If you decide to take out a life insurance policy, you will be asked to name a beneficiary.

The person, or people, you appoint as beneficiaries on your life insurance policy will inherit the cash lump sum that the insurance company pays out in the event of your death.


Who can be the beneficiary?

There is a common misconception that the person named as your beneficiary has to be related to you or be married to you but this is incorrect.

In fact, the decision of who you name as your beneficiary is completely up to you.


Who should be the beneficiary of my life insurance?

Deciding who gets your life insurance when you die can be challenging, especially if you have multiple relatives or loved ones.

You might even feel pressure to name a relative as your beneficiary, but the decision is yours, and yours alone.

There are a few factors to consider when making the decision, including:

  • Who would benefit from the money the most?
  • Is there someone close to you in financial need?
  • How many beneficiaries do you wish to name within your policy?
  • Would like to leave some of the money to a charity?

Another factor to think about is whether receiving a large portion of money could have a negative impact on the beneficiary’s financial situation.

For example, does the person in mind receive any benefits that could be stopped if they were to inherit the payout? If the answer is potentially yes, it could be helpful to put the money in trust, with a trustee managing the money on their behalf instead.

If you feel unsure about who you should name as your beneficiary, it might be useful to seek the advice of an impartial party. The advisors we work with specialise in life insurance and can provide you with an overview of your choices and talk you through the decision process.

Send your questions to an insurance expert or call 0808 189 0463.

How many beneficiaries can be on a life insurance policy?

If you would like to ensure that the money you leave through your life insurance policy is shared out between your loved ones, it’s possible to name multiple beneficiaries and leave a percentage to each of them.

For example, you may wish to leave 40% to your spouse and then 20% to each of your three children to inherit once they reach adulthood.

The percentage that you leave to each individual is entirely up to you. Keep in mind that if you have intentions of leaving a set amount of money to a beneficiary to pay off a mortgage or cover tuition fees, it can be a good idea to work out which percentage of the payout you need to allocate them to allow them to cover those costs.

How to name a beneficiary for life insurance

If you decide to take out a life insurance policy, the insurance provider will ask you to name your beneficiaries at the time of signing your agreement.

However, it’s important to not sign your contract in haste. Choosing a beneficiary for life insurance is a huge financial decision that could impact your loved ones greatly.

Always seek guidance from a qualified advisor. Not only can they help you through the decision process but they can make you aware of any legalities or unfavourable terms and conditions which could prevent your beneficiaries from making a claim.

It is only once you are absolutely certain of your decision as to who inherits your life insurance payout, that you should sign your agreement.


Beneficiary rules in the UK

As with any legal contract or insurance product, there are some rules that affect your beneficiaries. Before taking out a policy, you should be aware that:

  • You must name at least one beneficiary when you take out a life insurance policy
  • When you pass away, your beneficiary will need to provide proof of death in the form of a death certificate to make a claim

Have a question about life insurance beneficiary law? Make an enquiry and we’ll match you with one of the life insurance experts we work with. They’ll be happy to answer all your questions and help you set up a life insurance policy at the best possible price available to you. Saving you time, hassle and money.

Can a beneficiary be a trustee for a life insurance trust?

You may wish to place your life insurance policy in a trust and appoint either a legal professional or trusted friend/family member to disburse the proceeds according to your wishes.

This would mean that rather than the insurance paying out directly to your beneficiaries, it is paid into a trust and then the trustee would oversee and arrange for the funds to be shared. Doing this can help to reduce or avoid tax implications.

You may wish for your trustee to also inherit some of the life insurance payout and in the UK, beneficiaries are eligible to serve as the trustee of an estate.


Can children or minors be beneficiaries?

Although you can name children as beneficiaries for life insurance, the insurance company won’t be able to release their percentage of the funds directly to them unless they are eighteen years old or above.

Whether they are a primary or contingent beneficiary, if they are still legally a minor, a guardian will need to be appointed to manage the money until they reach adulthood.


Can I change the beneficiary of my life insurance?

Throughout your life, your relationships with your loved ones may change and so the decision about who should inherit your life insurance payout could alter.

A lot of people take out a life insurance policy in their youth, so foreseeing who their nearest and dearest will be in 60 years time can be difficult.

Fortunately, most life insurance policies offer the option to classify the beneficiaries named in your policy as revocable or irrevocable.

If you name a beneficiary as irrevocable, you cannot change your mind later down the line and that person will legally inherit the payout (or a percentage of the payout if you have multiple irrevocable beneficiaries.)

The exception to this rule is that if the person named as the irrevocable beneficiary provides written consent that they agree to no longer be named as the primary inheritant, you may be able to revoke your initial choice.

Of course, you could name your beneficiary as revocable. This would give you the freedom to change your mind at a later date.

How to change the beneficiary on a life insurance policy

Changing the beneficiary on a life insurance policy is relatively straightforward if they are revocable beneficiaries.

You will need to decide who it is that you now wish to name as your beneficiary and then once you have carefully considered your options, you will need to contact the life insurance company and request a “change of beneficiary” form.

This can be sent either by email or post and, once the insurance company have the new information, your policy is usually updated within 24 hours.

Can the power of attorney change the life insurance beneficiary?

Potentially yes, if a person is named power of attorney they can carry out certain financial decisions and transactions on the principal’s behalf.

In some instances, the responsibilities of the person named power of attorney can be general, meaning that they have only been assigned the power to make specific or limited decisions, which might not extend to changing the beneficiaries on a life insurance policy.

However, if the power of attorney has been appointed to make such decisions and they feel that it is in the best interest of the policyholder, they may be able to change the names of the beneficiaries.

Can a life insurance beneficiary be contested if a power of attorney changes it?

If the person named as power of attorney changes a life insurance beneficiary to benefit themselves, the original beneficiaries may be able to contest the decision.

However, as a life insurance policy is a legal document, contesting it can be a great legal challenge which can be costly.


Do beneficiaries pay tax on life insurance?

The great thing about life insurance is that unlike some inheritances, it is not subject to income or capital gains tax.

However, although the payout from a life assurance policy is generally free of deductions for personal income tax, if it is equal to or more than £325,000, your beneficiary may have to pay inheritance tax.

Anything under this amount is non-taxable and can be passed on to loved ones at no additional expense.


What happens to a life insurance policy with no beneficiary?

In a handful of instances, some insurance policies are “own life-own benefit” which essentially means that the policyholder cannot name a beneficiary.

If there is no named beneficiary, the life insurance payout would go into the policy holder’s estate and would then be distributed according to their will, along with any other assets.

Who gets life insurance if there is no beneficiary?

If there is no beneficiary named within a life insurance policy but a will has been set up, the person named as the main beneficiary of the estate will receive the funds.

If there is no will in place, all funds will be paid into the estate of the policyholder and then distributed by the courts.

If the deceased left a surviving spouse, children or family, these people are considered “next of kin” and generally inherit the entire estate.

What happens if the beneficiary of a life insurance policy is deceased?

If the person named as the primary beneficiary has passed away and is therefore unable to inherit the funds you have left them, your contingent beneficiary will be entitled to the money.

If no contingent beneficiary has been named then the money will usually be paid into the estate of the person who has passed away and then distributed to any surviving members of the family.

What is a contingent beneficiary for life insurance?

Contingent beneficiaries more or less wait in line in case the person named as the primary beneficiary is no longer able to make a claim.

Your secondary beneficiary is named by you when you take out your life insurance agreement. By naming this person, you are legally declaring that in the event that your primary beneficiary dies, they will inherit your life insurance payout.

Some people name their grandchildren or younger members of their family as the secondary beneficiary although, as the policyholder, it is completely up to you who to decide who would be next in line.

It can be helpful to discuss this with your family ahead of making a decision, although some people find talking to an insurance advisor can provide more unbiased clarity.


How does a beneficiary claim life insurance?

Beneficiaries will usually need to submit a copy of the death certificate, to prove that the policyholder has passed away and under what circumstances.

This process is sometimes referred to as “filing a death claim.”

How is life insurance paid out to beneficiaries?

If the recipient of the payout is a sole beneficiary, they will receive the entirety of the lump sum.

However, if there are numerous beneficiaries, each person will receive their percentage of the life insurance payout.

Each recipient will need to read and sign a benefits claim form, to acknowledge that they are the person named in the agreement and that they accept the money.

Once this has been signed, the claim will be processed and, providing there are no issues, the money will usually be released within 30 to 60 days.


How to find out if I am a beneficiary of a life insurance policy

If you think that you may be a named beneficiary on someone’s life insurance policy and that person has passed away, you should call the claims department of the insurance company.

If you are unsure, or perhaps unaware, of the insurance company name, contact an insurance specialist who can help you determine whether or not you are a beneficiary and where you need to make a claim.

An insurance expert can also guide you through the process of making a claim and can advise you on your next steps if you feel that you want to contest an insurance agreement.


Contact a life insurance expert

When seeking life insurance, crucial decisions need to be made such as who your life insurance beneficiary is.

The choices you make about who to leave your money to or how you’ll leave an inheritance that doesn’t burden the beneficiary with awkward financial implications can be difficult to make.

Confidential advice from an insurance expert can help you to understand more about life insurance and the best way to leave money for your beneficiaries.

Call 0808 189 0463 to learn more or make an enquiry for a free, no-obligation chat and we’ll match you with one of the expert advisors we work with.

They’ll be able to answer your questions and help you arrange life insurance at the best available price. They will happily assist you with the complete application process to save you time and hassle too.

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