Life insurance is taken out for the people we leave behind — but "the people we leave behind" as we picture them and as the policy document records them may not be the same, unless it is set out clearly. Here is what to understand about beneficiaries, so that final lump sum reaches the people you actually intend.
Who the beneficiary is
The beneficiary is the person the life assured names to receive the sum insured when a covered event occurs. Family members are the usual choice — a spouse, children or parents — as people with an insurable interest.
What happens if no beneficiary is named
If none is named, or the named beneficiary died first and the policy was never updated, the sum insured generally falls into the estate of the life assured and is divided under inheritance law. That can take considerably longer, and the outcome may not match the original intention. Naming someone clearly gets the money to the right person faster and more precisely.
You can name several people and split the proceeds
More than one beneficiary can be named, each with a defined share — a spouse and a child taking half each, for example. Good practice is to give the full name, the relationship and the share for each one, to remove any ambiguity on the day the documents are actually needed.
When life changes, change the beneficiary
Major life events — marriage, divorce, a child, a death in the family — are all moments to review who is named. Changing it is done by notifying the insurer on the prescribed form, generally at no cost. Take out every policy you hold and check whether the names still match the life you have today.
In short
Naming a beneficiary is how you communicate your final intention through a document. Name clearly, review regularly, and tell those close to you where the policies are kept — so the cover you have paid for over the years can do its job completely.