Who will get your life insurance proceeds?

Who gets your life insurance proceeds (outside of superannuation) depends on two main factors. Firstly who owns your policy, and secondly, whether you have a death nomination in place.

Policy ownership

Policy ownership gives the policy owner the right to the life insurance proceeds where no beneficiary nomination is made, making it a very useful device

If you own the policy - Most insurers will allow you to make a beneficiary nomination, allowing you to decide who will get your proceeds.

If your spouse owns the policy - if you would like your spouse to receive your life insurance proceeds following your death, you can name your spouse the policy owner. This guarantees your spouse will receive your proceeds.

However this may prove problematic if the relationship with your spouse deteriorates. If you were to divorce, your policy would still be owned by your ex-wife/husband. While this issue would typically be addressed in any property settlement, it can leave some uncomfortable feelings with this possibility.

Nominated beneficiary

As mentioned before, if you own the life insurance policy, you can nominate a beneficiary, to receive your life insurance proceeds.

Such a nomination cannot be ignored or overturned by a life insurance company and, as such, binds the life company to pay your nominated beneficiary.

Your beneficiary can be any person or entity (it does not have to be a dependant), and you can generally nominate up to five beneficiaries to share the proceeds in any percentage you would like. However if one of your beneficiaries passes away, the life insurance company cannot forward that portion of your life insurance proceeds to the next person.

For example, if your spouse passes away, your spouse's portion of your life insurance proceeds cannot go to your children. If you need to set up this type of scenario, you need to structure this in your will.

Advice on setting up your life insurance policy

Many people pay little attention to the mechanism that delivers life insurance proceeds to their intended beneficiaries - they simply expect that the proceeds will end up in the right hands.

With that said, proceeds don't always end up where you intended them to. This can have significant implications for your intended beneficiaries.

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June 2011