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Life Insurance Beneficiary Rules

Life Insurance Beneficiary

After taking the first important step in considering to take out a Life Insurance policy, but still have a few questions. Which may include, what is a beneficiary? Or are there rules regarding how many beneficiaries you can have? This short guide can help you find the answers.

A Life Insurance policy can be a great way of protecting yourself. Providing a financial safety net for your family and loved ones. After putting a protective policy in place and having paid your monthly premiums. You will want to be sure that the right people benefit from the legacy that you have created for their future.

In Today’s Guide

We will answer some of the most common questions about Life Insurance and policy beneficiaries including:

What Is A Life Insurance Beneficiary?

Who Can Be A Named Beneficiary?

Who Should Benefit From My Life Insurance?

UK Beneficiary Rules

Can Children Be Life Insurance Beneficiaries?

Can I Change A Named Beneficiary?

Do Life Insurance Beneficiaries Pay Tax?

Get Help With Life Insurance Cover

Life Insurance Beneficiary for families

What Is A Life Insurance Beneficiary?

During the process of applying for Life Insurance protection, you will be asked to name an individual or individuals. Who will then be named as beneficiaries. The beneficiaries of your Life Insurance policy will inherit either the cash lump sum. Or a monthly benefit amount that you have chosen for them.  

Who Can Be A Named Beneficiary?

A very common misconception made by many people is that a named beneficiary has to be relative or be married to you. The beneficiaries of your Life Insurance policy is solely at your discretion. Which means that you can choose multiple people or organizations.

Some people choose to leave a portion of their Life Cover protection to extended family members or charities of their choice.

Who Should Benefit From My Life Insurance?

When it comes to deciding who will benefit from your Life Insurance policy after you pass away can be a very hard choice to make. At Life Insurance Cover we encourage people to discuss your policy with family members and beneficiaries, this will help to manage their expectations.

Rather than you feeling pressurised to name a specific relative as your protection policy beneficiary.

There are a few factors to consider when choosing a beneficiary, including:

  • Who could benefit from the money the most?
  • Is there a family member who is struggling financially?
  • How many different beneficiaries would you like?
  • Would you like to leave some of the money to a charity?

A further key factor to also consider when choosing a beneficiary. Is whether receiving a large sum of money could have a potential negative impact on the individual’s current financial situation.

A primary example of a person who could be negatively impacted would be someone who is receiving any benefits. They may find that any benefit payments they receive will be stopped if they were to inherit a large sum of money. If you believe a potential beneficiary could be negatively impacted. It could be helpful to put the money in trust. By placing the money in trust will mean they receive a set amount per month/year and a trustee managing the money on their behalf instead.

How Many Different Beneficiaries Can I Have?

If you choose to have more than one person benefit from your Life Insurance policy. Ensuring that the money you leave to them from your policy can be shared out between your loved ones. It is possible to name multiple beneficiaries and leave a percentage to each of them.

This could be a simple 50%/50% split. Or you may wish to leave 50% to your spouse and then 25% to each of your two children to inherit once they reach adulthood.

The amount that you choose as a percentage for each individual is entirely up to you. A key point to remember is that if you intend to leave a set amount of money to a beneficiary to pay off a mortgage or university tuition fees. It would be a good idea to calculate the amount you would like to allocate to them and then work out the percentage value.

UK Beneficiary Rules

As with any legal document, contract or Insurance product, there are rules that will affect your beneficiaries. These have been put in place to protect you and people who may benefit from your Life Cover. Before you take out a Life Insurance policy, you should be aware that:

  • To complete an application for Life Insurance you must name at least one beneficiary.
  • After you pass away, your named beneficiary will need to provide your Life Insurer with a copy of a death certificate to make a claim

Have any further questions about how Life Insurance beneficiaries work? Simply complete either a free online quote or use our contact us page. One of our expert team will be happy to answer all your questions. They can also help you set up a life insurance policy at the best possible price available to you. Saving you time, hassle and money.

Life Insurance Beneficiary from Life Insurance Cover

Can Children Be Life Insurance Beneficiaries?

It is very important to remember that although you can name children as beneficiaries for your Life Insurance policy. An Insurance provider will not be able to release their percentage or total benefit amount directly to them unless they are 18 years old or above.

Irrespective of if they are a primary or only a small percentage beneficiary. If they are under 18 years old, they will still will be legally classed as a child. Therefore it is important to appoint a guardian to look after them both physically and financially until they reach adulthood.

Can I Change A Named Beneficiary?

Throughout your lifetime many things will change, your family may increase through the birth of a child or a long term relationship. This could impact your decision on who should receive a part of your Life Insurance benefit.

Many people choose to take out a Life Insurance policy when they are young to ensure that they are adequately protected and pay less in monthly premiums. Therefore, knowing who would benefit from your policy in 60 years will be very hard to work out.

Fortunately, all Life Insurance policies offer you the option to classify your beneficiaries named in your policy as revocable or irrevocable.

Revocable: Changing a beneficiary on a Life Insurance policy is relatively straightforward if they are revocable beneficiaries. It is very important that you choose this option when buying a Life Insurance policy. If you choose to reappoint a beneficiary during the policy duration. You will need to contact the Life Insurer and request a “change of beneficiary” form.

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

Irrevocable: If you name a beneficiary as irrevocable, you will not be able to change your mind in the future. The named person will legally inherit the payment from the insurer or a percentage of the pay-out if you have multiple beneficiaries. The only exception to this potential issue could be if the person named as the irrevocable beneficiary provides written consent to the insurer. Agreeing to no longer being a named beneficiary. This would then allow you to revoke your initial choice.

Do Life Insurance Beneficiaries Pay Tax?

One of the many benefits with Life Insurance is that unlike some more complex inheritances, it is not subject to income or capital gains tax.

However, it is very important to remember that although a pay-out from a policy is generally free of deductions for personal income tax, if it is equal to or more than £325,000, your named beneficiary may have to pay inheritance tax. Therefore it is important to discuss the details with the people who will benefit from your policy, allowing them to ensure that they remain below the threshold.

Anything under £325,000 is non-taxable and can be passed on to family members or loved ones without taxation.

Am I A Named 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. At Life Insurance Cover we have written a specific guide to help you through the process.

Get Help With Life Insurance Cover

When searching for the best Life Insurance for you and your family, many important decisions need to be made including who your beneficiary is.

At Life Insurance Cover our specialist team has the experience to help you. Finding the long term protection that you may need. They can also assist you with the full application. Including how to assign your policy, placing it in trust and creating a financial safety net for your loved ones.