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When taking out life insurance, you’ll be asked to name a beneficiary.
Life insurance provides financial protection for your loved ones should you pass away, so you may want to choose beneficiaries that will benefit from your pay out the most if you were no longer around.
Choosing who to name as your life insurance beneficiary is a very personal choice and it’s one that you shouldn’t be swayed into making.
It can seem like a confusing task, especially if you’re unaware of the rules involved.
Thankfully, there aren’t too many rules. The beneficiary rules in the UK are as follows:
You may still be wondering who the best person is to name as your beneficiary, so keep reading as this article will help to answer any further questions you may have…
A beneficiary is a named person (or persons) on a life insurance policy who will inherit the pay out upon the passing of the policyholder.
You have the freedom to choose anyone you’d like to be a beneficiary of your family life insurance policy.
Many believe beneficiaries need to be your next of kin or a relative, but this isn’t true.
The choice is ultimately up to you and who you’d like to benefit from your pay out.
Choosing who to name as a beneficiary can be a difficult decision, especially if you have many loved ones.
To help with your decision, there are a few questions you can ask yourself:
If you have a partner or children, you may choose to name them as your beneficiaries to ensure they won’t struggle financially upon your passing.
Or you may simply want to leave your life insurance pay out as an inheritance for family and/or friends to enjoy as they wish.
Alternatively, you don’t have to leave your pay out to a person.
If you have a charity that’s close to your heart, it’s completely possible to have the charity named as the beneficiary.
By doing this, the proceeds of your life insurance policy will be paid directly to your chosen charity.
It’s a misconception that, if you’re married, you’ll need to name your spouse as a beneficiary.
While it can be common to do so to help cover share financial commitments, you’re not obligated to name your spouse as a beneficiary on your life insurance policy.
If you believe there are people who’d benefit more from your pay out, you have the choice to name them instead.
If you do decide to name your spouse as a beneficiary, there aren’t any specific rules and the same standard rules will apply.
Yes, children can be named as beneficiaries. However, children under the age of 18 won’t directly receive the pay out.
Typically, a guardian will be appointed to manage the money until the child turns 18.
Alternatively, if you’ve written the policy in trust, the trustee will be responsible for the funds until the child is of age.
It’s possible to name multiple beneficiaries on your life insurance policy.
You can name as many beneficiaries as you like. For example, you may want to name your spouse/partner, plus any children as beneficiaries so they can all benefit financially from your policy.
Yes, in most cases you’ll be required to name at least one beneficiary who’ll benefit from your life insurance pay out.
If for some reason, you pass away without any beneficiaries your life insurance will be added to your estate.
If you’ve left a will your estate will be divided as per you wishes. However, if you haven’t left a will this could cause problems when your estate is divided between loved ones.
Naming life insurance beneficiaries is an easy and efficient way of ensuring your loved one’s benefit from your selfless investment.
We have written a helpful How to find out if someone has a Will guide if you require additional information »
You’ll be asked at the point of application to name your chosen beneficiary or beneficiaries.
It’s important to provide as much detail as possible on this form to avoid any confusion after your passing. It’s likely you’ll need to provide the following information:
Once your beneficiaries have been named, the form becomes a legal document that will be used by the insurer upon your passing.
You’re not required to inform your beneficiaries that you have chosen them, although knowing this information can make the claims process more straight forward.
At Reassured, our award-winning team can take you through the entire process, from application, to naming beneficiaries and writing your policy in trust.
We’re here to help you and don’t charge a fee for our services.
If you have multiple beneficiaries, you may wonder how your pay out will be divided.
Again, it’s ultimately up to you how you wish your pay out to be divided between your loved ones.
This could be divided as a specific sum of money or as a percentage of the overall pay out.
For example, you may want 50% of your pay out to go to your spouse, 25% to a child and the remaining 25% to a close friend.
This will need to be stated at the point of application, so the insurer or trustee knows how much to pay out to each beneficiary.
If you’ve written your policy into trust, the trustee will be responsible for ensuring your pay out is distributed as per your wishes.
Some life insurance companies will allow you to change your beneficiary during the term of your policy.
You’ll simply need to contact your provider and, if they allow changes to be made, you’ll be sent a ‘change of beneficiary form’ to fill out.
If you’ve written your policy in trust, this could cause some complications depending on what type of trust the policy has been written in.
If you’ve written your policy in flexible or discretionary trust, it’s likely you’ll be able to make the necessary changes.
However, if the policy has been written in absolute (or bare) trust, it’s unlikely you’ll be able to make changes.
This is because an absolute trust is absolutely for the benefit of that specific beneficiary.
Keep reading to find out more about writing your policy in trust…
Writing your life insurance in trust detaches it from your estate and places a trustee in charge of the funds upon your passing.
The trustee will then manage the pay out on your behalf and ensure it’s distributed as per your wishes (similar to the executor of a will).
There are three key benefits to writing your policy in trust:
This allows your loved ones to make the most of your selfless investment.
How much is inheritance tax (IHT)?
Inheritance tax is set at 40% and will need to be paid on any estate value over a set threshold.
In the UK, the threshold stands at £325,000 for those who’re single or divorced, or £650,00 for those who’re married or widowed.
Inheritance tax will be paid on any value over the threshold.
For example, if the value of an estate is £600,000, 40% tax will be paid on the £275,000 that exceeds the £325,000 threshold.
By writing your policy in trust, you detach it from your estate so it’s not subject to inheritance tax – allowing your beneficiaries to receive a full pay out.
FREE trust writing service from Reassured
Taking out life insurance through Reassured allows you to benefit from our free trust writing service.
Our award-winning team can help you fill out the necessary forms and decode any life insurance jargon you may not understand – giving you confidence that your policy is exactly as you wish.
By using our broker service you’ll benefit from over 10 years of industry knowledge, so you’re in good hands.
Why not get in touch and speak to a friendly member of our team today?
The difference between a trustee and a beneficiary is that a trustee manages the funds from a life insurance policy, whereas the beneficiary inherits them.
Upon the passing of the policyholder, the funds will go to the trustee for them to manage.
They’ll be in charge of ensuring the money is distributed among the beneficiaries as per the wishes of the policyholder.
The beneficiaries, on the other hand, will simply have the funds paid out to them.
Can a trustee also be a beneficiary?
Yes, it’s possible for a trustee to also be a beneficiary.
A trustee will be someone you trust and have a close relationship with, therefore you may also want them to benefit financially from your life insurance policy.
Upon the passing of the policyholder, beneficiaries can contact the life insurance provider to let them know of the death.
Most providers will require proof of the death in the form of a death certificate.
It’s likely the insurer will also need some basic information about the deceased, such as:
You may also be asked what your relationship with the deceased is and may have to provide some details about yourself, such as your name and contact information.
The process may vary between providers, but you’ll be guided through what to do by the claims advisor.
Once the insurer has everything they need, the claim will be assessed. Once the claim is deemed valid, the pay out will be made.
How is life insurance paid out?
A life insurance pay out will be paid directly to the beneficiary into a UK bank account.
Unless the policy is written into trust, in which case the funds will be paid to the trustee who’ll distribute the money as per the wishes of the policyholder.
The time it takes for the funds to be paid out can vary between providers.
No, a life insurance company won’t know of the death until they are notified of it, therefore they won’t contact beneficiaries to start the claims process.
To make the life insurance claims process more straight forward, you can inform your beneficiaries that they have been named so they know what to do when the time comes.
Or, alternatively, you can keep the details of your policy to hand and notify your loved ones of where the details are, so when the time comes they know where to look.
If a beneficiary has passed away and is unable to claim their funds, a contingent beneficiary will be entitled to the money.
A contingent beneficiary is essentially a secondary beneficiary.
In the event that the primary beneficiary passes away before the policyholder, the contingent beneficiary will then take their place upon their passing.
If you have named more than one beneficiary, you may choose to make one of the other beneficiaries the contingent beneficiary.
If no contingent beneficiary has been named, then the funds will typically be paid into the estate of the deceased.
If a loved one has recently passed and you believe you may be a beneficiary, you can contact the life insurance provider’s claims department.
If you (or a family member) have access to the deceased’s documents, you may be able to find information regarding the policy.
When taking out life insurance it’s important that your loved ones know of the policy and know where to find the documents.
This will help to speed up the claims process for your beneficiaries and prevent your pay out from going unclaimed.
If you have no way of finding out information about the policy, but you think you may be a beneficiary, there’s the Unclaimed Assets Register, where any unclaimed life insurance policies will be listed.
You’ll need to pay a £25 fee to use this service.
Speaking to a life insurance expert, like Reassured, allows you to gather all the information you need about securing the right cover and ensuring the right people benefit from your policy.
Our impartial broker service can guide you through the application process, compare quotes on your behalf and help you write your policy in trust.
We do all the hard work for you, to help you save time and money.
Life insurance cover starts from as little as 20p-a-day through Reassured, and we don’t charge a fee for our no-obligation quotes.
Why not get in touch?
 SunLife (2021), Cost of Dying Report, sunlife.co.uk/siteassets/documents/cost-of-dying/cost-of-dying-report-2021.pdf
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