You can choose pretty much anyone to be the beneficiary of your life insurance; spouse, civil partner, child, friend, other relative or charity. The choice of who should benefit from your policy should you pass is an extremely personal one and the decision should be yours and yours alone. Your chosen insurance company should not influence your decision for who should be your life insurance beneficiary, but they may encourage you to choose someone who has your best interest at heart and is concerned for your welfare.
Once you have chosen your beneficiary you don't have to tell them, in some cases beneficiaries don't know until the policy holder has passed. Ultimately the choice of who benefits is solely yours.
When you pass, the beneficiary or beneficiaries you have chosen and named on your life insurance policy will receive the sum assured upon your death. Before you choose who will be your beneficiary think about why you took out the life insurance in the first place. Do you have dependents, financial or otherwise? Are you married? Are you taking out life insurance to financially protect your family as a whole? Do you want to provide a nest egg for your child or children's education? Depending on how you answer these questions will have a large bearing on who you name as the life insurance beneficiary.
If you simply want to ensure your family are financially cared for in the event of your death, you may want to name your spouse or partner as the beneficiary. Your surviving partner can then use the funds acquired from your policy to cover household bills, keep up mortgage repayments and maintain the support of your children.
If your primary reason for life insurance cover is to ensure your young children are provided for either with their education or in later life you can establish a trust. When a policy is 'Written in Trust' in the event of your death the sum will be paid straight into this trust instead of going to probate like the rest of your estate. This is one way in which you can side step this sum of money being part of the sum of your estate which is subjected to inheritance tax. Once your child comes of age they will be able to take control of the money. It may be worth noting though, life insurance policies 'written in trust' means your partner won't be able to use the funds to care for your child/children. If your intention is for your partner to use the money to care for the children naming your child/children as beneficiaries in this way may not be the best avenue.
If you take out your life insurance cover before you have a family, be it a spouse or children, you may want to name your grandparents or parents as beneficiaries. In this case you may even want to name a close friend providing that this is an enduring friendship and not one that is based on capital gains.
If you are a parent to adult children you may want to name them as well as any grandchildren you may have as beneficiaries. This may allow you to fulfil a dream of leaving your own legacy for your family. Giving them the funds to do something they have always wanted to do.
If you name your spouse or partner depending at what age they are when they receive the fund they can either use it to care for your family, home and not feel any financial hardship in the event of your death. Or if your partner is of retirement age, naming them will allow them to enjoy their retirement and use the fund as a supplement to their pension.
If you do not have family to leave your insurance payout to, you are able to leave it to a business partner or if you would like your final gift to be one of 'giving' you can leave the funds from the payout to a charity.
The long and short of it is, who would you like to see benefit the most from the sum assured of your life insurance policy? Depending on the point in life in which you are at when you pass, may decide who you feel is most deserving.
Short answer, yes! Life insurance is like a long term investment that you make on behalf of your named beneficiary. Depending on your personal circumstances when you took the policy out, things may be different now. When you originally took out the insurance policy you may have been married but somewhere down the line you got divorced and are now married to someone new. In this incidence you can change the named beneficiary to reflect this. Or originally you may not have had any children, times changed and you now have a child or children, you may want to now name them as your beneficiary. Or if you may have outlived your originally named beneficiary. There are many circumstances in which you may want to change who benefits from your policy and life insurance companies should accommodate your change in wishes for as long as the policy is valid and/or you are still alive.
If you don't name a beneficiary the sum assured once you have past it will be rolled into your entire estate and it will go through probate along with the rest of your assets such as a house and anything else you owned in name. If the sum assured goes to probate it is subjected to UK inheritance tax laws. Inheritance tax law in the UK allows you to leave up to £325,000 tax free in the event of your death, anything over that about is subject to 40% tax, unless it is to your spouse, in which it is all tax free. Once the assured sum goes to probate it will be distributed as your will stipulates. If you have ear marked this money for someone in particular it may be better to name them as a beneficiary. Going to probate can take up to 6 months for people to receive any payout in the event of your death, named beneficiaries often receive the sum in up to 3 weeks. If you haven't named a beneficiary and you haven't set up a will the assured sum will be added to your estate as a whole, valued, inheritance tax paid where applicable and will be distributed according to the customary chain of inheritance. Customary chain of inheritance in the event that no will has been written can be found, here, on the government website.
The above post is intended to be informative but does not constitute advice - financial, legal or otherwise. Any opinions given are the author's own and do not necessarily reflect the views of SO Media or the Mitchell Farrar Group.
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