Under Super, the beneficiaries you can choose are limited
Who would you nominate to receive the payout from your life insurance in the event of your death?
Your partner? Your children? A neice? Your best friend? Maybe a charity?
Each of us is different in terms of who we would nominate as the beneficiaries of our life insurance. Though given the point of life insurance - and paying for life insurance - is to look after those people or entities that are important to us and need it the most when we pass away, knowing that those beneficiaries will indeed receive the payout, is critical.
It’s the whole point.
With a retail life insurance policy, you can name any beneficiary
When you have a retail life insurance policy, a successful claim is paid either directly to you or your beneficiaries in the event of death.
You have the direct relationship with with life insurer.
How insurance through Super policies payout
With a direct, retail life insurance policy, you can name any beneficiary.
In fact, it typically goes further.
You can usually nominate primary and contingent beneficiaries:
- Primary Beneficiaries: individuals or entities who will reeceive the payout, dividing the payout among potentially multiple primary beneficiaries, specifying the percentage payout to each.
- Contingent Beneficiaries: beneficiaries that will receive a payout in the event that primary beneficiaries are unable to: predeceased the policyholder or the business/entity no longer exists.
With a direct, retail life insurance policy, you have this complete flexibility.
50% to your partner, 25% each to the kids and a charity as the contingent beneficiary in the event the primary beneficiaries are not payable to.
With life insurance under Super, choosing beneficiaries is limited
If your life insurance is through your Super, your beneficiaries need to be financial dependents.
Your partner, children or someone that has an interdependency on you (e.g. a carer): someone that financially relies on you.
Under life insurance through Super, you cannot nominate beneficiaries that are not dependent: a friend, a niece, an adult child, grandchildren or a charity.
To do this, you would need to nominate your estate as the beneficiary and have those non-dependent in your will as beneficiaries of your will.
The Super trustees of the Super fund need to determine if those you have nominated as beneficiaries are indeed beneficiaries and that takes time.
And if the trustees determine that your beneficiaries are not dependent, that decides how the payout is made and if it is taxed.
Conclusion
Understanding who will receive the life insurance payouts in the event of our death is understandably important.
With a direct, retail policy this is reasonably straightforward.
With life insurance under Super, this can become less straightforward. And with less options and possible tax implications impacting the value of the payout(s).
