Who gets my life insurance payout when I die?

What is a beneficiary?

This is the person who gets the payout when you die. For most people, that’s their spouse or life-partner. Or, who is the lucky bunny to benefit from your foresight to insure yourself in case the grim reaper came knocking early.

How does life insurance work for beneficiaries?

So, you’re dead. A bit earlier than planned, but that’s life, or more accurately, death for you. The grim reaper is a sneaky little bugger sometimes. But thankfully you’ve got life insurance, so your loved ones are going to be alright, financially that is. They just need to wheel out your death certificate to the life insurance company, and wait for the cash payout to come in. But just like life, death has a habit of not being that straightforward. When you take out a life insurance policy, you have to name a beneficiary.

Beneficiaries and divorce

But here’s the inconvenient thing. People fall in and out of love. By the time you take your final bow, the beneficiary named on your life insurance may have been superseded by husband or wife number two. Or three. (Once you get into Elizabeth Taylor numbers, it gets really complicated.) So, it’s always a good idea to update your beneficiary, in the case that you get divorced. On that point, you might want to read our guide ‘What happens to life insurance after divorce’ - it could be useful.

Who should be your life insurance beneficiary?

Most people tend to leave them to partners, spouses, children, or other family members. Those who would be the most financially impacted if you were to suddenly shuffle off this mortal coil unexpectedly early. But you can leave your payout to whoever, or whatever you wish. Animal sanctuary, science project, a life long best friend, it depends how creative, or mischievous you’re feeling.

Just be sure that you review your beneficiary, or beneficiaries regularly. Because people change, maybe your concern for mistreated donkeys isn’t what it was. So lesson one — make sure your beneficiary is still the most deserving person (or animal sanctuary) for your legacy; and if not, choose the one that is.

Can I have more than one beneficiary for my life insurance payout?

Most life insurance policies let you nominate multiple beneficiaries. Handy for when the offspring arrive, or if you fancy a spell of polygamy. You’ll need to say what percentage of your payout each beneficiary will receive. This should probably be part maths exercise, e.g. whoever’s on the hook for the mortgage should probably get the lion’s share and part popularity contest. And just like before, you should keep this list updated to reflect how life turns out. You’ll need to request a ‘change of beneficiary’ form from your life insurance company to do that.

How much do beneficiaries get from my life insurance payout?

Quite simply, whatever you’ve nominated to them from your payout. Obviously it depends on the value or ‘sum insured’ of your life insurance policy too. It could be 100% or a proportion of it. How you decide who gets what however, may be more challenging.

How can I make sure a beneficiary isn’t removed from my payout?

If you have a general mistrust of the future, then nominating an ‘irrevocable beneficiary’ could be for you. Irrevocable beneficiaries can’t be removed from a life insurance policy, and nor can their percentage payout be reduced. (Without their permission, at least.) Often they’re a demand made on the policy holder, used to protect someone’s interests from the risk of an almighty family fallout. Or to protect your children in case an evil stepmother should ride into town one day. Think of them like a prenup. Without the sex.

Another way to go is to add ‘contingent beneficiaries’ to your policy. These are like substitutes, ready to come off the bench and take the payout if your primary beneficiary is no longer able to claim. For example, if they’re mentally incapacitated. Or dead. Grandchildren are often named as contingent beneficiaries. It’s a solid way of keeping the family silver safe.

Can I name my children as a beneficiary?

Yes, you can, but legally the cash will be put into trust until they’re at least 18 years old. So they won’t get their payout until they’re technically an adult, in case they blow it on bankrolling some shit startup or mass manufacturing fake ID. Additionally your life insurance provider might also make you appoint a guardian. That’s one more detail on your policy to keep updated.

One way around having to name beneficiaries is to leave your insurance in trust. When you do this, any payouts from the policy will go into a big pot, which is managed by a trustee that you have appointed. It’s then their job to manage and share the funds in the trust, according to your wishes. As well as being less exposed to the whims of the future, putting your life insurance policy into trust can be tax efficient too.

With DeadHappy, there's more...

So, that covers your beneficiaries. And for traditional life insurance, that’s where it stops. But here at DeadHappy, choosing who gets your hard-earned payout is only half the game. We reckon it’s also nice to buy them something with it. We call them deathwishes, and you can leave behind as many as you like, for as many people as you want. From the serious, like a deposit on a first home; to the fun, a puppy to fill that spot on the sofa where your bum used to go in. That’s the sort of stuff people remember.

Want to know more, hop on over to our Deathwish page where you can make, share and, if there’s money involved, insure them too – unless you’re loaded that is or immortal.

Get started