Life Insurance Proceeds
How To Ensure That Your Life Insurance Proceeds Are Protected In Australia
Know the facts about Life Insurance policies and ensure that you protect your families payments by managing your policy correctly. Contact a financial solicitor for more information on (02) 9011 7929.
Life insurance is a major key in regards to an individual’s financial planning as it covers your family financially if the worst was to happen to you. Unfortunately, there are occasions where life insurance payments fall into the wrong hands and those in need never receive what they are owed. For this reason we’ve created an in depth guide for those with life insurance policies to ensure that your proceeds are protected and end up in the right hands in the event of your death.
Ownership Of Your Life Insurance Policy
Whoever owns the life insurance policy is entitled to the proceeds, therefore you may change ownership from yourself to the person of who you wish to receive the payment if the worst was to occur. An example would be making your partner the owner of your life insurance policy. This option may not be right for everyone as only the policy owner can make changes to the insurance policy. For this reason, you may wish to remain to the owner of your own policy rather than hand over all of the power to someone else.
If you remain the owner of your life insurance policy, if the worst was to happen, the proceeds will be paid to your estate. From there, your executor will pay out your estate according to your will. You may not want to have your life insurance policy sent to your estate; in this case you can nominate a beneficiary, which we will go into more detail below.
Nominating A Suitable Beneficiary
When you take out life insurance, you have the option to nominate a beneficiary of your choice. This beneficiary is the person of who you wish to receive the proceeds of your life insurance. More often than not, you can nominate as many as 5 beneficiaries to share the proceeds of your policy in accordance to your specification. Usually, people nominate their children or spouse as their beneficiaries but it is completely up to you who you choose. The only requirement is that your nominee must be at least 18 years old.
If you choose your children as your beneficiary and they are under 18, you can clarify in your will that their proceeds will go to their dependent. This way, if other beneficiaries pass away your children will be the recipient of the proceeds. Once you nominate someone as your beneficiary, the nomination is binding and cannot be overturned by your provider, creating a legal contract which requires the payment of all beneficiaries.
When Your Life Insurance Proceeds Go To Your Estate
If you remain the sole owner of your life insurance policy without any beneficiaries, your proceeds will be paid to your estate if the worst is to occur. Your estate will be then paid out in accordance to your will. While this may seem straightforward, there are often problems which arise in this situation, such as the following:
- Debt Repayments Being Made: If you have an outstanding debt at the time of your death, there is a possibility that your insurance proceeds may be sent to your lenders with only the left over amount being paid to your family. This includes new debts such as funeral expenses and will administration fees.
- Delays in Payment: Distributing an estate can take a good amount of time and is often delayed, leaving your family members without their due payments. Losing a loved one is hard enough without the impact of financial uncertainty, especially if you were the main source of household income.
- Having an Invalid Will or No Will At All: If your will is not clear in it’s instruction or you don’t have a will at all, you’re estate will be at the hands of the State Intestacy laws which award your next of kin the proceeds although can lead to even further delay than usual.
- Your Will Is Contested: Often times, family members and partners can feel hard done by if they aren’t included in your will in a way they feel they should. In this case, legal action may be taken which can cause further delay and could affect the payment of other family members.
Review & Update Your Policy
Over time, you personal circumstances and relationships may change. Friends can have a falling out and relationships can end. In the event of these situations, you should adjust your life insurance policy beneficiaries as soon as possible to ensure that your proceeds go to the desired recipients without issue or delay.
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