What is a beneficiary and how does it work?

We’ll admit it, we love a good bit of jargon. Which company doesn’t? 

Fortunately, we think our jargon is fairly easy to understand. Let’s take ‘beneficiary’, for example. We know it has its uses in everyday lingo, but it has a specific meaning in the insurance world, too. 

Let’s dive in. 

What is a beneficiary in insurance?

A beneficiary in insurance is the person you name in your life insurance or funeral insurance policy to receive the payout in the unfortunate event of your death. 

You can also nominate more than one person, which would mean you have beneficiaries, plural. You might wish for them to split the payout down the middle like a cake, or you might opt for one person to get a larger portion than the other, like sharing a tub of ice cream with an older sibling. 

You can nominate your beneficiaries when you set up your life insurance or funeral insurance policy, and you can choose whether or not you want to tell them about it. But keep in mind, that if you expect them to plan and pay for your funeral, it might be a good idea to inform them so they know they have funds coming in to cover the costs*! 

*Both funeral insurance and life insurance policies offer a lump sum payout, so your beneficiary may use some or all of that cash to pay for a funeral. Considering that a funeral can cost upwards of $8,000, it may be a good idea to factor this into your policy plans.

Roles and responsibilities of a beneficiary

There are two things that need to be done following your passing. These boxes are often ticked by a beneficiary – but not always. 

The first is to notify the insurance company of your passing. After all, while we think we’re pretty helpful, we will still need someone to let us know the news. 

The second thing is to make a claim. They can give your insurance company a call to get the rundown, or you could head online to download the relevant form to get started. This should be a straight-forward process, and the insurance company would be available to answer questions as required.  

However, if you name a young child as your beneficiary, they may not be calling the insurance company and filling out paperwork. In this case, another trusted friend or family member can lodge the claim.

What is the difference between a beneficiary and a will?

A beneficiary is the person you name to receive your insurance payout. 

On the other hand, a will is the formal document you leave behind that outlines your wishes, which can include anything from what you want your friends and family to do in your honour after you’re gone, to who gets your Beanie Baby collection, to who receives your savings and assets. 

The importance of estate planning

Estate planning is yet another bit of jargon (can’t say we didn’t warn you) that simply means the plans you make for your money and the things you own after your passing. 

That means deciding who gets your savings (and how it is split up if you are giving it to multiple people or charities), and what happens to all your stuff. It also means planning your funeral, how it will be paid for, and who might need looking after financially if you have any dependents. 

Funeral insurance can help with the funeral costs, as it sets up a payout designed specifically to cover those costs. A good life insurance policy can help to look after any dependents you have by giving them a lump sum payout to help with things you might normally pay for, such as the mortgage. 

All in all, when you set up a life insurance policy or a funeral insurance policy, it’s your beneficiary who… well… benefits, though it also ensures to ease the financial burden once you’re gone. Find out more about OneChoice Funeral Insurance and OneChoice Life Insurance and discover how they can offer peace of mind to you and your family.

2 Dec 2024