Who can benefit from your life insurance

There are many reasons people decide to take out life insurance and deciding who benefits from life insurance (who the life insurance beneficiary will be) requires some serious thought and consideration.

A popular choice of a beneficiary for life insurance is typically a spouse or long term partner (as a primary beneficiary) and a child or children (as a contingent or secondary beneficiary). 

However, there are no strict rules concerning the choice of person, only that you choose one. It’s your policy and your choice to do with its proceeds as you please.

Here’s everything you need to know regarding who can benefit from your life insurance including answers to your most commonly asked questions.

Who is the beneficiary of life insurance?

Can I choose more than one beneficiary for life insurance?

Things to consider before choosing your life insurance beneficiary

Life insurance beneficiary rules UK

Life insurance payout after death UK

Life Insurance Beneficiary FAQS

Get a Quote

Who is the beneficiary of life insurance?

Your chosen, named beneficiary in your life insurance policy is the person, people or company who will inherit a cash lump sum (who gets life insurance payout of the ‘sum assured’) from your insurance company after your demise.

The beneficiary can be:

  • Any child or children including adopted children or step-children
  • A spouse, civil partner, cohabiting partner or non-cohabiting partner etc
  • A sibling, cousin or any other relative or dear friend
  • A business partner
  • A trust
  • A charity

Small cut out heart on black paper between fingers

Can I choose more than one beneficiary for life insurance?

Yes, you can choose:

  • multiple beneficiaries and leave each beneficiary a percentage share of the policy proceeds.
  • a primary beneficiary who will be the first person in line to receive a payout and a contingent beneficiary (so a backup beneficiary) who will be the second person in line to receive a payout should the primary beneficiary die before you, the policyholder.

Note: Any online references to secondary or final beneficiaries usually apply to life insurance beneficiary options in the US; in the UK you typically have a choice of a primary or contingent beneficiary (i.e. the main beneficiary and a backup beneficiary) only. However, you should ask your insurer or broker about adding a final and third beneficiary if you feel this is necessary.

Get a Quote

Things to consider before choosing your life insurance beneficiary

Usually there is a specific reason or a purpose behind taking out a life insurance policy so think about what prompted you to take this course of action.

Of course beneficiary choice will also depend on at what stage you are in life, what debts you may have or how old you or your dependants are.

Life insurance for families

Many couples with financial dependants will typically name each other as a primary beneficiary and then their child or children as a secondary beneficiary. This way the surviving partner can inherit the policy proceeds to help look after any child or children and pay the household bills but, should they die, the [adult] children will receive the payout instead.

However, this decision process can be complex, especially with ‘blended families’ where you may have children together and also have a step-child or step-children from previous relationships.

If you request a no-obligation life insurance quote from Bobatoo, you will get to speak to one of Bobatoo’s expert advisors, free of charge, to discuss your life insurance requirements. Bobatoo can help you set up a life insurance policy that covers all your needs with a trusted insurer, at a price you can’t afford to miss.

Life insurance for children

Many parents choose to make their child or children a beneficiary of a whole of life policy, usually as a nest egg for:

  • their higher education
  • a deposit on the first property purchase
  • or to buy a car

A child or children named as a life insurance beneficiary can be your:

  • biological child/ren
  • step-child/ren
  • adopted child/ren
  • grandchild/ren
  • nephew(s) or niece(s)
  • godchild/ren
  • a friend's child or children

Note: Because a child can’t legally inherit until they’re an adult, life insurance for children will need to be put into trust, the details of which will also need to be set out in a Will.

Life insurance for mortgage

Another highly popular choice for younger parents with a mortgage is to specifically take out decreasing term life insurance to pay off their mortgage in the event of their untimely death.

Life insurance for retirement

If you’re financially solvent and want a nest egg you can dip into for your retirement, then taking out a whole of life insurance policy that gives the option to withdraw cash funds at a later date can be a great option. For example, it could make the difference between you being able to afford a luxurious trip on the Orient Express as opposed to a day out in Margate!

Life insurance for funeral costs

Many people take out over 50s life insurance so there is money specifically available to use towards their funeral costs.

Read more: Life insurance for over 50’s - What you need to know

Life insurance for charity

Many people like to leave a gift in their Will to a charity close to their hearts and this gift can be life insurance policy proceeds where a charitable company is the named beneficiary on a life policy.

Read more: Charitable legacies - Things to consider

Life insurance for a business partner

If your family is already well provided for or you don’t have one, you may want to consider making a business partner your beneficiary to help them keep your joint business afloat and sustain the impact of the void caused by your absence.

Get a Quote

You might like: Which life insurance policy should I get?

Life insurance beneficiary rules UK

There are legal beneficiary rules in the UK you must adhere to when taking out life insurance, which are:

  • You must name a minimum of one beneficiary on the policy
  • To successfully make a claim, your beneficiary (or a guardian if they’re a minor) must provide a death certificate as proof of your death

Life insurance payout after death UK

If someone with a life insurance policy dies, the executor/s or a policy beneficiary should notify the life insurance company as soon as possible.

How the life insurance payout is handled after death in the UK will primarily depend on who the policy proceeds need to be sent to.

Life insurance trust payout after death

If a life insurance policy is in trust, the lump sum death benefit is paid directly to the beneficiary named in the trust deed, does not form part of an ‘estate’ and avoids any Inheritance Tax liabilities (if applicable). 

However, if the beneficiary is a child, the proceeds cannot be paid until the child becomes an adult. 

Writing a life insurance policy in trust means a beneficiary can be paid more promptly as there is no need to wait for probate.

Life insurance estate payout after death

If a life insurance policy wasn’t in trust, then the proceeds will be paid to the executors of the deceased’s estate and held in an account by the executor/s until probate is granted.

When a policy forms part of an estate, IHT is payable if the threshold of £325,000 is met.

Once probate is received, the executor/s will then pay out the policy proceeds to the named beneficiary.

Life insurance mortgage payout after death

If a life insurance policy was set up to pay off a mortgage or loan, a claim form will usually be sent to the assignee (lender) for completion and return before funds are paid to clear the mortgage debt or loan. However, if it transpires that the debt has been settled in full, then the assignee will notify the executors of your estate accordingly.

If a family member is aware that the debt was settled in full prior to your death, then they should seek documentary evidence of this - this can be known as a ‘reassignment letter’ or ‘no further interest’ letter - and pass this on to the executors.

Get a Quote

Life insurance beneficiary FAQS:

Can you take out life insurance on someone else UK?

It’s difficult to insure someone else unless you can prove that person is an ‘insurable interest’ who can only ever be a spouse or a civil partner.

Typically a permitted insurable interest is a bank or building society to whom you owe money rather than a personal individual.

The only real exception to this rule is for business life insurance where you can buy ‘key man insurance’ to protect a specific employee whose loss would have a potentially devastating impact on a business.

Get a Quote

Can you leave life insurance to a pet UK?

No, you cannot name a pet as a beneficiary in your life insurance policy but you could ask a close friend or relative to look after your pet after death and could set up a discretionary trust to fund your pet’s care, vet’s bills, etc, and have this written in your Will.

Another alternative is to make an arrangement with an animal charity to care for and rehome your pet after your death.

Read more: What happens to pets when their owners die?

Can you leave life insurance to a minor?

Yes, as mentioned above, you can leave life insurance to a child in trust.

Life insurance written in trust will be ring-fenced by the trustees and accrue interest until a child attains the age of 18 years. This is known as a ‘bereaved minor trust’.

However, the stipulated age for inheritance doesn’t have to be 18; you can choose the age you would like a minor to inherit anywhere between the ages of 18 and 25. However, due to a change in law, 18-25 trusts can only be created by parents for their biological children or stepchildren.

Trusts set up for non-biological and non-stepchildren such as grandchildren, nephews and nieces, godchildren, etc, are either called a ‘bare trust’ or a ‘relevant property trust’.

It’s entirely up to you to choose what you feel is the right age for a child beneficiary to inherit. This is usually an age when you feel they will be responsible and adult enough to make good [sensible] use of the funds rather than squander them.

As trusts can be complex, it will be necessary for you to speak to and use the help of a legal expert to set one up.

You will also need to write a Will to set out the details of any trust.

You can enquire about how to set up a trust with Wills Services who offer a professional, online Wills and Probate service that is much cheaper than using a traditional high street solicitor. You can request one of their experts contact you for a free, no-obligation chat by completing their online contact form.

Get a Quote

What happens to life insurance beneficiaries after divorce?

If your spouse or civil partner is named as a beneficiary in your life insurance policy, they will still inherit the policy proceeds should you die before a divorce is legally and formally finalised, even if you are separated and a divorce is ‘going through’.

Read more: How does divorce affect your life insurance policy?

Can I change my life insurance beneficiary?

Yes, you can easily change your life insurance beneficiary unless you chose to make them an irrevocable beneficiary when you arranged the policy.

To change an irrevocable beneficiary you will need their written consent.

You might like: Changing life insurance - what you need to know before switching policies

Is life insurance part of an estate UK?

Yes, but only if you do not specifically name a beneficiary other than yourself in your life insurance policy. Where this is the case, the policy proceeds (payout) will be paid to your ‘estate’ and administered by your executors.

Do you pay tax on life insurance payout UK?

Yes, but only if you do not specifically name a beneficiary in your policy as your policy proceeds will form part of your estate and will therefore be subject to Inheritance Tax (should your total estate equate to £325,000 or more).

No, if you choose to specifically name a beneficiary and leave your life insurance policy in trust then no Inheritance Tax will be payable should your estate exceed the IHT threshold.

This is why it’s important to name a life insurance beneficiary - so you can avoid paying thousands of pounds in tax to the government.

Read more: Benefits of putting your life insurance in ‘trust’

Get a Quote