Nominating your life insurance beneficiary
See, when the chips are down, life insurance pays out a lump of cash to those you hold dear. It's like a helping hand giving your loved ones the means to handle debts and day-to-day costs. And choosing the person who gets your life insurance payout is a decision worth giving a good thinking-over. This simple guide covers the ins and outs of nominating a beneficiary, who can be nominated, and other aspects worth considering. Stick around as we chew the fat on this significant choice.
What's a nomination of 'beneficiary' anyway?
When it comes to life insurance, making a nomination means choosing who will receive the payout if you pass away. These people are called beneficiaries, and they'll get the death benefits payment. It could be your partner, your kids, or even a charity you're keen on supporting–basically, whoever you've nominated to benefit from your well-thought-out plans. Plus, having a valid nomination means the money can be divided among your beneficiaries as you've specified.
Who can I nominate as a beneficiary?
Who you can nominate as beneficiaries will depend on whether your insurance is held inside or outside of your superannuation.
If your insurance is held outside of super, you have more flexibility in choosing who can be nominated. It can be anyone - a family member, a company, or even your estate—the choice is all yours. You can chuck in a bunch of beneficiaries if you're keen—maybe family members, or even mix it up with a charity. But here's the thing: if you go the multiple beneficiary route, you'll need to let the insurer know the portion you’d like each to receive. The total nomination must add up to 100%.
Anyone you nominate usually needs to be at least 18 years old to get the benefits. If you've got younger folks in mind and nominate them, their benefits will be paid to a nominated trustee or legal guardian until they reach their 18th birthday. This tip's gold, especially if your goal is to secure the future of your young ones through insurance.
So, when you're working out who's going to cop the benefit, give some thought to the ones who rely on you financially. Also, look at whoever will be affected if you have any outstanding debt.
However, if your insurance is held inside super, there are specific people who are eligible to be nominated as beneficiaries according to superannuation laws. See below for details.
Just a heads up:
If someone you nominate is not entitled to a percentage of your benefits, the relevant portion will be paid at the decision of:
the estate (for policies held outside super), or
the trustee (for policies held inside super).
If you nominate someone as a beneficiary (except if they're the policy owner too), they don't have any control over the life insurance policy. They can only receive the death benefit and are unable to authorise or start any policy transactions.
Binding or non-binding nomination? What’s the difference?
When you have life insurance within your super and nominate a beneficiary, you have the option to make it either a binding or a non-binding nomination.
A binding nomination is a legally binding statement that your insurer will use to determine who gets your money if you pass away.
On the flip side, a non-binding nomination isn’t set in stone. While your insurer will consider your preference, it’s not legally enforceable. Instead, they’ll take it into account along with other legal aspects when making the life insurance payment.
To ensure your family is well looked after, it’s crucial to keep your beneficiary details up to date within your super account + insurance policy held in super (if insurances are held with a retail policy they have their own nomination forms).
Types of nomination of beneficiaries in super
Source: UNDERSTANDING NOMINATION OF BENEFICIARIES | AIA
Few more things to know:
If you opt for a 'non-binding nomination' or fail to make any nomination at all, the trustee of the superannuation fund will have more flexibility in determining where your money should go. This could potentially result in delays, disputes, or outcomes that you didn't anticipate.
If you choose a binding nomination, it's important to note that you'll need to review and update this nomination every three years. However, you have the option to make it 'non-lapsing' to avoid the hassle of frequent updates.
Why should you nominate a beneficiary?
By making a valid nomination, you can ensure that your loved ones receive the money quickly. It also brings you peace of mind, knowing that unexpected expenses won't burden your beneficiary/beneficiaries.
If you don't make a nomination, the death benefits may be paid to your estate (for policies outside of super) or to the superannuation trustee (for policies within super). They will then have the power to decide how to distribute the money, which can be a lengthy process, especially if there is a dispute.
How do I nominate someone?
Before making your nomination, it would be wise to seek advice from your financial adviser. They can guide you in choosing and filling out the right nomination form that suits your personal situation. It's also a good idea to consult with an estate planning lawyer for legal advice.
To make a nomination, you can either complete a nomination form when you apply for insurance or send your insurer a separate nomination form afterwards.
Selecting a beneficiary: When's the right time?
Typically, it's something you do as you're applying for your insurance policy. But hang tight, because this decision doesn't just fade into the background once it's made.
Here's the deal: life's full of surprises and changes, quicker than a blink of an eye. You might be going solo right now, but who's to say what the future holds? Down the road, you might tie the knot, start a family, or find someone who needs that extra bit of support more than your original choice.
That's why we're stressing the importance of staying in the know. It's a smart move to give your insurance setup a quick check every now and then. The twists and turns of life could mean it's time to revisit your beneficiary selection. So, keep your focus and your insurance details up to date—just in case you need to make adjustments to those beneficiary decisions along the way.
Keeping your beneficiaries up to date
No need to stress if you want to make a change or cancel your previous nomination. Just follow these easy steps and your new valid nomination will take its place. You can get the necessary forms from your insurer or your financial adviser.
Here's how to update or cancel your nomination:
Do beneficiaries have to pay taxes on life insurance death benefits?
Typically, if the policy is held outside of super, the death benefit is tax-free. However, if the policy is held within super, there may be tax implications. It's best to consult your financial adviser or tax adviser for more information.
Sharing about your choice
Here's a heads-up on something vital: make sure to have a good yarn about your decision with your nearest and dearest. Straight talk can save your family from any sticky situations down the line. This decision's a weighty one—just a reminder, we're here if you want to have a chat about it.