Life insurance beneficiary rules in the UK

Life insurance works by paying out a lump sum of money to a named person, called a beneficiary, if you die.

No one wants to think about claiming on a life insurance policy, but if the worst happens, the policy should pay out a lump sum of money to the beneficiary named on the policy. This tends to be family members or friends, who are financially dependent upon the person who had the life insurance policy. How the money is paid out, and when, depends upon the type of insurance policy and how it’s been set up.

What is a life insurance beneficiary?

When you buy a life insurance policy, among other things you’ll need to list the person or people who you would like to receive a cash payout if you were to die. These are called the beneficiary or beneficiaries and tend to be family members such as children.

If you die within the life insurance term, and there is a successful claim on your life insurance policy, the money will be paid to the beneficiary. This doesn’t automatically happen though, if they are a child for example, this may be paid to a trustee or guardian.

Who can be the beneficiary?

Life insurance is usually taken out to provide financial support for the dependents of the person who has died. This is usually for children or a partner if the person to die was the main breadwinner, for example.

However, there are no rules to say who you can pick as a beneficiary and it’s completely up to you. The person doesn’t have to be related to you, they just have to be named in the life insurance policy documents.

How many beneficiaries can be named on a life insurance policy?

You can decide how many people you want to leave a life insurance payout to. It may just be one person or you could pick lots of different people.

You can also decide how much each person will receive either as a set amount of money or a percentage of the final payout. All of these details are decided upon when you take out a life insurance policy, and you should be able to change these details if you need to at a later date.

Life insurance beneficiary UK rules

In the UK there are certain rules you must follow when you name a beneficiary for your life insurance policy including the following:

• You are required by law to name at least one beneficiary on the policy document.
• In order to make a claim on the policy, your beneficiary (or their guardian if they are under 18) will need to provide proof of death with a death certificate, which will usually be completed by a doctor.

Can children or minors be beneficiaries?

Children are often named as beneficiaries on life insurance policies as many people take one out in order to make sure their children will be protected financially if they die.

However, any child or minor under the age of 18 won’t be able to receive the funds directly. Instead the money may go into a trust, if it’s been set up this way, or a guardian will need to be appointed to manage the money for the child until they turn 18.

How do you name a beneficiary on your life insurance?

When you buy a life insurance policy, the insurer will ask you to name a beneficiary, or beneficiaries. You need to name at least one person and you can name as many as you’d like. These are the people who will receive the money, if you are to die before the end of the policy term.

What if my life insurance doesn’t have a named beneficiary?

If there is no named beneficiary on a life insurance policy the money will usually go into the deceased person’s estate. It will then be divided up following whatever is set out in the person’s will. If there is no will it will be divided up under the rules of intestacy.

Can you change the beneficiary on your life insurance in the UK?

Life insurance policies are long-term products and it might be the case that you want to add a beneficiary onto your policy, or you want to change one you’ve already named.

You’ll usually be able to do this but it all depends on the type of policy you have and how it’s been set up. If you’re not sure, contact your insurer and it should be able to advise you.

How does a beneficiary claim on life insurance?

If the person holding the life insurance policy dies, the beneficiary will need to show proof of death to the insurer in order to make a claim on the policy. Who does this will depend upon the age of the beneficiary and it may be the case that a trustee makes the claim if the beneficiary is too young.

Bottom line

Choosing a beneficiary for a life insurance payout is a big decision and one that needs to be properly thought through.

The entire point of the policy is to protect your dependents so you want to make sure you’ve named the right people and that there’s enough money for them to cover costs such as mortgage fees.

If you aren’t sure who to include, or you need help deciding, an insurer should be able to help or you could speak to a financial adviser, although you’ll have to pay for this.

Frequently asked questions

• Can a power of attorney change the life insurance beneficiary?

  In some instances, a power of attorney may allow for a change to be made to a life insurance beneficiary. The power of attorney gives some financial control over to another person and this could include changing a beneficiary on a policy. However, the rules are very strict around who can do this and when. It may be the case that a beneficiary can only be changed if the original beneficiary has died, for example.

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

  If someone with the responsibility of power of attorney changes a life insurance beneficiary, and the original beneficiary or any other party does not agree with the change, they can usually contest this. These situations are rare but can arise and will usually be handled by the insurer or a solicitor.

• Do beneficiaries pay tax on life insurance?

  Life insurance payouts are usually tax free, so the beneficiary should not pay tax on the money. However, if the person who has died has a large estate, and the life insurance payout is included in this, there may be inheritance tax of 40% to pay in some cases.

• What happens if the life insurance beneficiary is deceased?

  If the beneficiary has died, the money in a life insurance payout will often go into the main estate of the deceased person. This will then be distributed to those who would receive the estate, usually by a solicitor.

• What is a contingent beneficiary?

  When you take out life insurance, along with naming a beneficiary who will receive any money if you die, you can also name a second person, or persons. They will receive the insurance money if the first beneficiary can’t for some reason and they are known as the contingent beneficiary.