Updating life insurance beneficiaries

When circumstances change, you may want to review and update who’ll receive the death benefit payment.

You can generally change the nominated beneficiary on your life insurance policy at any time as long as no claimable event has occurred, like the death of the policyholder.

To change the beneficiary on your life insurance policy, you’ll need to complete a change of beneficiary form either in person or online. Using that form, you can:

1. Nominate more than one beneficiary
2. Nominate your estate as the only beneficiary
3. Cancel all of the current beneficiaries on your policy

• What details will I need to complete a change of beneficiary form?

  You’ll need to have the following details of the person who’s going to be the new beneficiary:

  • Full name
  • Residential address
  • Their relationship to you

  • Date of birth
  • Sex
  • The percentage split (how or if benefit will be divided)

What’s a life insurance beneficiary?

A life insurance beneficiary is the person (or persons) that receives the death benefit payout in your life insurance policy in the event that you pass away or are diagnosed with a terminal illness with less than 12 months to live.

As the owner of the policy, you can nominate which beneficiaries are to receive what proportion of the benefit (must add up to 100% in total). In the event that a benefit is paid out, the percentage split must be upheld by the insurance provider.

Who’s eligible to become a life insurance beneficiary?

While most people nominate their spouse and children to be their beneficiary, applicants have the ability to nominate anyone to receive their benefit payment.

As many people wish to leave their benefit payment to their children, it’s important note that an insurer won’t pay the money directly to a minor. In this case you can set up a trust, name an adult custodian to transfer the money or nominate an adult friend or family member that you trust to carry out your wishes.

Also be aware that if you live in a community-property state, it’s more than likely that your spouse will have to oblige if someone other than them is nominated. Here are the states where this could happen:

• Alaska
• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Tennessee
• Texas
• Washington
• Wisconsin

How do I make sure the money gets to the right person?

When you review your life insurance policy, it is important to consider whether the people you wish to give your benefit to will actually receive it. If you’re the sole policyholder and you haven’t made it crystal clear who your beneficiaries are, the life insurance benefit could be paid to your estate in the event of your death and be distributed by your executor.

People who’ve married more than once or have children from a previous marriage could see complications and lead to benefit distribution at the executor’s discretion. The benefit could also be used to pay off any debts the estate owes before your beneficiaries see any of it.

It’s important that you make legal provisions to make sure your benefit is distributed correctly. If you don’t, the matter may be tied up for some time, which could lead to financial hardship for your loved ones.

What happens if a policy beneficiary passes away?

In the event that a beneficiary passes away and no new beneficiaries have been nominated, the amount insured will be returned to the policyholder. If the policyholder is the same person who owns the policy, the benefit will be distributed to the estate as per the beneficiaries will.

If both the beneficiary and policyholder pass away at the same time, the benefit will be distributed according to the policyholders will.

How does policy ownership work?

When reviewing your life insurance policy, paying attention to policy ownership is one way to make your coverage more effective. If you’re the life insured and the sole policy owner, then the benefit paid on your death is likely to go to your estate.

To avoid this, consider making the person you want to benefit from the payout the owner of the policy. While this will ensure your beneficiary receives the benefit rather than your estate, it could be problematic if the beneficiary was your spouse and you were to become estranged or divorced, as you would then have no control over the policy.

As well as self-ownership, other forms of policy ownership include:

• Cross ownership. Two seperate policies between two people that are owned by the other.
• Joint ownership. A policy owned by two people that only pays out once. When the benefit is received, the owner no longer has insurance.
• Business or company ownership. The policy is held for a revenue purpose and to protect the loss of an important individual in the company.

When thinking about ownership during your policy review, consider seeking professional advice from your insurer, adviser or financial consultant — the implications of ownership can be complex.

More useful information on policy ownership

Do I need to consider estate planning and wills?

An up-to-date will can that ensure your beneficiaries receive the proceeds of your life insurance policy fairly and in a timely manner. A will not only directs the proceeds of your life insurance to the right people, but also ensures the correct distribution of the other assets that make up your estate.

A comprehensive estate plan would also cover circumstances such as power of attorney, where you nominate another person to make decisions on your behalf, should you be unable to do so.

How do my insurance needs change as I get older?

As you get older, it’s inevitable that your life insurance needs will change. It’s critical for policyholders to review their coverage annually to make sure the right level of protection is in place. Possible changes to your circumstances and your insurance needs can include:

• Family. Children can leave home and start their own families and you may wish to extend coverage to new grandchildren. Alternatively children could divorce and return home, requiring re-inclusion in your policy.
• Finances. You may pay off your mortgage, reducing the amount of coverage you need or alternatively, you may suffer a financial loss and accrue debts, requiring additional coverage.
• Health. As you get older, you’re statistically more likely to become ill or injured, so you might wish to consider increasing your amount insured earlier, as the older you get, the more expensive this becomes.

When do you need to update your beneficiaries?

Consider key events that could trigger the need to update who’ll receive the benefit of your policy in the event of your death. Events could include:

• Death of a beneficiary

  • While it’s never a pleasant thought, unexpected deaths can happen. The loss of a child, other family member or close friend could mean an adjustment to your nominated beneficiary.

• Birth of a child

  • The arrival of a new child to your family could mean an adjustment to your beneficiary nomination is needed. Similarly, it could mean that you need to reconsider the sum insured in your policy.

• Divorce

  • Many joint life insurance policies will automatically nominate ones spouse as the beneficiary. A linked policy may not provide applicants with the option to nominate another beneficiary. This can cause some complications in the event that the couple become separated or file for a divorce. In the event that this occurs:
    • Both policies can be canceled and two new policies can be applied for
    • One person could continue the policy while the other takes out a new policy
    • The two could continue to keep the policy if the couple remains on good terms following their separation

• Step children

  • The arrival of additional step children could mean an adjustment is needed to the policies nominated beneficiaries. It could also mean an additional level of coverage is needed to avoid being underinsured.

Many unforeseen changes can happen over the life of a policy and reviewing if the benefit will be given to the right people is crucial.

Am I paying too much for life insurance?

Another factor to consider when reviewing your life insurance policy is whether you’re still getting good value for money. Some of the indicators of good life insurance coverage include:

• Inclusion of a terminal illness benefit
• Guaranteed renewable policy (can be renewed without further medical underwriting)
• Funeral advancement benefit covering immediate funeral expenses
• Additional options such as critical illness and disability
• Discounts for various levels of coverage
• Choice of level or graded premiums
• Choice of when the premium is paid — monthly, bi-annually, annually

How do I change who is a beneficiary?

1. Contact your estate planner. You may be required to contact your estate planner attorney to let them know of adjustments to your beneficiary nomination.
2. Contact your life insurance company. Most insurance providers will require you to fill out a change of beneficiary form. Some of these will be available to be filled out online while others will require you to print them out and mail them. It’s best to reach out to your provider over the phone if you’re unable to locate the documents online.

Contact your insurance company if there’s any part of the process that you’re unsure of.

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