What Does It Mean to Be the Beneficiary of a Life Insurance Policy

Ian Lewis[1]

Ian Lewis

Money Savings Advice Being the beneficiary of a Life Insurance policy

As a beneficiary of a life insurance policy, you are entitled to payment upon the death of the holder. While traditionally a partner, family or friend, there are no limitations as to the relationship between a beneficiary and the insurance policyholder.

You will need to inform the insurance company of the death of the policyholder to claim any payment as the beneficiary.

A Beneficiary of a Life Insurance Policy

As a beneficiary of a life insurance policy, you are entitled to payment upon the death of the holder. You do not need to sign anything to be a beneficiary. You may need this payment if you own a joint mortgage with your partner and they die.

Life insurance policies are often used as a means of providing financial stability for family and friends in the event of your death.

If your partner was to die, then a life insurance payout could be used to pay off a mortgage, personal loans or other debts. It is possible to structure life insurance payments and premiums around specific situations.

Continue reading to see if a Life Insurance policy is right for you and your family.

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What Is a Life Insurance Beneficiary?

A beneficiary is simply an individual who will benefit from a payout from a life insurance policy upon an individual’s death. It is common to send a copy of the death certificate to the insurance company to secure payment. This process is very simple and very quick because often beneficiaries may be facing financial struggles.

Do I Need to Give My Consent to Be Named as a Life Insurance Policy Beneficiary?

The simple answer is no. The individual who took out the life insurance policy is able to name any beneficiary they so choose. However, as a beneficiary, you can refuse receipt of payment in the event of their death.

Can I Refuse a Life Insurance Policy Payout?

There may be occasions where an individual may not wish to receive a life insurance payout upon the death of the holder. While it is the holder who will name the beneficiary, as the named beneficiary, you don’t have to accept receipt of any payment.

A “disclaimer of benefits” would see the payment go to the next in line – similar to the scenario if you had died before the policyholder.

How Quickly Are Life Insurance Policies Paid Out?

The main delay for payment of life insurance upon the death of the holder is obtaining a copy of the death certificate. As soon as the life insurance company is in receipt of a death certificate, then payment will be made almost immediately.

Insurance companies are acutely aware that many beneficiaries may have depended upon the deceased partially or wholly in terms of income. As a consequence, they may be suffering from financial distress.

Can Anyone Be a Life Insurance Policy Beneficiary?

There are no restrictions whatsoever on named beneficiaries with regards to life insurance policies. It is simply down to the policyholder as to who they should benefit from a life insurance payment upon their death.

Indeed, some people may name charities as a beneficiary or even their business partners as their death could cause issues with the running and financing of their business.

What Are the Main Reasons for Being Named as a Life Insurance Beneficiary?

Life insurance policies are a means of ensuring family and loved ones are provided for upon your death. As we touched on above, it is possible to structure a life insurance policy to mirror mortgage debt, personal loan debts or even credit card debts.

There are various types of life insurance policy with the two most popular being whole of life cover and term insurance.

Will I Pay Tax on a Life Insurance Policy Payout?

In the vast majority of cases, there will be no capital gains or income tax to pay on a life insurance payout. This may be different if, for example, a trust is named as the beneficiary which forms part of the deceased’s estate. When looking at inheritance tax planning, it is very important to take financial advice which includes the procurement of life insurance policies.

Have I Any Legal Liability as a Life Insurance Policy Beneficiary?

There are no legal and no personal financial liabilities as a named beneficiary on a life insurance policy. You are simply noted as the recipient of the payment on the death of the policyholder. There are no premiums to pay and in the vast majority of circumstances, no taxes.

How Much Will I Receive as a Beneficiary?

The payout from an individual life insurance policy will be determined by the premiums paid and the terms of the policy. The sum insured will be detailed in the policy paperwork, which would be required for reference purposes when informing the life insurance company of the holder’s death.

Traditionally the payout will be structured around financial liabilities such as an outstanding mortgage, etc.

Can a Life Insurance Payout Be Disputed in Court?

It is possible to dispute life insurance payouts although this is not something that the life insurance company would ever get involved in. They are legally obliged by the life insurance holder to pay out to the named beneficiary. In the event of a dispute, this payment could be delayed while legal avenues are investigated.

Disputed life insurance payments tend to revolve around partners, ex-partners, family and sometimes friends.

What Should I Do With My Life Insurance Payout?

The payment received by a beneficiary will depend upon an array of issues such as the number of beneficiaries, terms of the policy, etc. Once you have received payment, you are free to do with the funds as you so please - there are no legal restrictions.

The only way to potentially introduce legal restrictions on how the funds can be used would be to hold the payment in trust on behalf of a beneficiary.

Why Might a Life Insurance Policy Not Payout?

Unfortunately, there are some circumstances where a life insurance policy may not payout upon the death of the holder. These could include suicide, undisclosed smoking, dangerous activities, illegal activities, and proven or suspected fraudulent activity.

If the holder had underlying health issues before taking out the life insurance policy, these would likely have been added to an excluded list. If the death occurred as a consequence of any conditions or circumstances on the excluded list, then no payment would be made.

Should There Be a Secondary Beneficiary as a Backup?

In the event that the beneficiary of a life insurance policy dies before payment, this can have a knock-on effect on the payment timescale. In this scenario, the beneficiary of the will, of the subject of the life insurance policy, would receive payment.

If there was no will, the payment would be distributed by the courts to qualifying people. Therefore, it may be sensible to add a secondary beneficiary as a backup. This may be an individual who would look after the funds for the children of the deceased, under a pre-agreed arrangement.

Should I Take Advice on Life Insurance?

Even though the vast majority of life insurance strategies are relatively straightforward, it is still sensible to take financial advice. There are different types of life insurance, different ways in which it can be used, and it is important to structure the policy around your particular requirements. As a consequence, more and more people are now looking towards insurance brokers for the best deals and the best advice.

What Are Independent Insurance Brokers and Tied Insurance Brokers?

An independent insurance broker has access to the wider market and therefore, a greater number of life insurance providers to choose from. On the other hand, a tied insurance broker is often restricted to just one life insurance company they can deal with.

At first glance, many people automatically assume that an independent insurance broker will always be more competitive than their tied insurance broker counterpart. However, this is not always the case!

As a tied insurance broker, potentially huge business could be funnelled through a relatively small number of parties. Therefore, a busy time broker could have significant influence over the terms and conditions offered by their providers.

As a consequence, it is not beyond the realms of possibility that they could match or even better that available via an independent insurance broker. You will also find that many tied insurance brokers specialise in particular areas, in which they can be even more competitive.

Should Life-Insurance Be Part of Your Wider Financial Strategy?

Yes. There is a tendency to consider life insurance and additional investments in isolation. However, what could be more important than providing for your loved ones in the event of your death? There are ways and means of using life insurance too, for example, to cover potential mortgage liabilities.

It may be that as the main earner in the household; your loved ones would find it difficult if not impossible, to cover regular payments. There’s also the issue of providing financial support for your family in the short, medium and longer-term after your demise.

So, when reviewing your finances (traditionally at the end of each year), you should consider life insurance as part of your wider long-term strategy.

Can I Adjust My Life Insurance Further Down the Line?

It is unlikely that your life insurance requirements in your 30s will be the same as your life insurance requirements in your 50s. As a consequence, you may wish to take out additional life insurance where, for example, you have a larger mortgage liability.

There are two main options here, approach your existing life insurance provider and ask if you can extend coverage. The second option is to take out an additional life insurance policy which will give you the additional coverage required.


There are various issues to consider with regards to your position as a beneficiary of a life insurance policy. Indeed, in some circumstances, the beneficiary may not even know they were named on the deceased’s policy.

While life insurance policies are traditionally used as a means of ensuring financial security for the family in the event of an individual’s death, they can be used for a variety of reasons.

How Can Money Savings Advice Help You With Life Insurance?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Life Insurance brokers. They have already helped thousands of people get the best Life Insurance cover and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Money Savings Advice Author Ian Lewis

Ian Lewis

Ian Lewis is one of our specialist financial writers. Ian has over 15 years of financial writing experience, having worked for some of the largest financial publications in the UK covering topics from mortgages, equity release, loans and financial claims, to name a few.

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