When purchasing a life insurance policy, you have to decide who should be the beneficiary of your life insurance. This is a challenging decision as it can greatly impact your loved ones, so it is vital to be as informed as possible.
In this guide, we’ll cover the life insurance beneficiary rules in the UK and explain everything else you need to know before choosing your beneficiaries.
So, keep on reading.
When taking out a life insurance policy, your insurer will ask you to list a person or people known as beneficiaries who you would want to receive a lump sum of money if you were to die during your life insurance policy term.
While many assume they must list their spouse or children, there are almost no rules for a life insurance beneficiary. The decision is completely up to you, so you can choose to designate a friend, relative, sibling and even charities or businesses as beneficiaries of your life insurance.
Moreover, you have the option to pick as many beneficiaries as you wish and decide precisely how much each of them will receive. For instance, you can leave your spouse 50 % and each of your children 25 %.
Did you know that one in three people in the UK is life insured?
Life insurance beneficiary rules must be followed. Thus, before taking out your policy, you should be aware of the following:
Many people want to make sure that their children will be taken care of when they die, so it is not uncommon for children to be named as beneficiaries of a life insurance policy. However, according to life insurance beneficiary rules for minors, they won’t be able to receive the funds until they turn 18. So instead, the funds will either go into a trust, or the beneficiary’s parent or guardian will manage the money until they reach adulthood.
When taking out a life insurance policy, your insurer will ask you to add your beneficiary at the time of signing the policy agreement. You can choose to name one or more beneficiaries that can claim on your policy and receive a payout in case you die during the lifespan of the policy.
There are types of life insurance policies known as own life-own benefit policies, where the policyholder can not name a beneficiary.
In these cases, the funds would form part of the policyholder’s estate, and they would be divided according to their will. If you haven’t found a will, the policy payout will be distributed between people that are considered to be the deceased next of kin.
It is not uncommon for policyholders to want to add or change the beneficiaries they’ve named when they first signed the policy agreement, especially if they had their spouse as a beneficiary and they got divorced later on. If you’ve classified them as revocable, changing the beneficiary on your life insurance is pretty simple.
All you need to do is contact your insurance provider and request a “change of beneficiary” form. However, it gets much more complicated if you’ve named your beneficiary as irrevocable. The only way to change an irrevocable beneficiary is to get their written consent, where they agree to no longer be named as the primary person of your life insurance.
According to the life insurance beneficiary rules and requirements, if the policyholder dies, the person named as beneficiary will need to contact the insurer and provide a death certificate to make a claim against the policy. Then, they’ll need to complete a claim form and provide some details of the policy.
If there are multiple beneficiaries each of them will need to submit a separate claim so they can receive their percentage of the payout. Once the claim has been processed, the funds should be transferred to the beneficiary’s bank account within 30 to 60 days.
If you’re not sure whether you’re named a beneficiary on someone’s life insurance policy, you should try and locate their policy documents and find the policy number. Once you find it, you can contact the life insurance company, and they should be able to confirm whether you’re a beneficiary. If you can’t find any documents and you don’t know the name of the insurance company, you should get in touch with an insurance specialist who can help you out.
You may be interested in: Will inheritance affect my benefits?
One of the biggest benefits of taking out a life insurance policy is that the insurance payouts are usually not subject to income or capital gains tax, meaning the beneficiary won’t need to pay tax on the money.
However, according to life insurance beneficiary tax rules, if the life insurance payout is added to the policyholder’s estate whose total value exceeds £325.000, the beneficiary might be liable for inheritance tax.
Also read: How to avoid paying tax legally in the UK?
A beneficiary is a person who will inherit your life insurance payout when you pass away. Even though there are no rules restricting who you can pick, choosing who you’ll name a beneficiary is a big decision that it’s worth thinking about.
Also, once you choose your beneficiary of beneficiaries, make sure to inform them and give them your policy number so they’ll be able to file a claim when the time comes.
According to life insurance beneficiary rules, your ex-spouse stays as the beneficiary of your policy even after divorce, meaning if you die, they’ll get the funds unless you’ve changed it previously.
According to life insurance beneficiary rules in the UK, if the beneficiary of life insurance is deceased, the funds will be included in the estate of the person who passed away and distributed to any surviving members of the family.
My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.