What is a Beneficiary on a Life Insurance Policy?

We know that it is very important to have life insurance. This gives a lot of protection and financial assistance to loved ones when the policy owner passes away, not to mention the peace of mind it can provide, knowing that your loved ones will not struggle financially when you die.

As an essential form of insurance, we need to know and understand who and what are involved in a life insurance policy. You’ll be allotting money for it for a long period of time so you might as well know where your money is going and how it can benefit you and your family.

When looking for different types of life insurance in Australia, you will come across components or terms such as policy owner and beneficiary.

Policy Owner

As the name suggests, the policy owner is the one who owns the life insurance policy. From changing and/or adding beneficiaries, updating the coverage, and becoming the default beneficiary, to canceling the policy and paying premiums, the policy owner has full authority to make changes.

Beneficiary

In a life insurance, the beneficiary is the individual who is entitled to receive the payment once the policy owner dies. There are two types of beneficiaries: primary and contingent.

  • Primary beneficiary – This can be your spouse, child, and or children, person who’s in an interdependency relationship with you, or someone who is dependent financially to you.
  • Contingent beneficiary – This can be one of more individuals who are also listed in the policy and will receive the life insurance payment if the primary beneficiary/ies die/s before the life insured.

Take note that if the beneficiary is a minor, you need to assign a guardian or trust to get life insurance funds. Also, a policy owner can have several primary and contingent beneficiaries and indicate the percentage each will receive. This enables the policy owner to fully control where the money will go

With several factors to consider, it is important to take time to research and understand the components of a life insurance. Compare your options and choose what fits your needs and preferences. You can likewise seek professional life insurance advice and/or ask friends for feedback on their own life insurance. Also, choose your beneficiaries well so you don’t have to worry about your loved ones and their finances.

Do you know other things that we need to consider when it comes to life insurance in Australia? Share your life insurance advice in the comments section.

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Types of Life Insurance in Australia

You have probably seen a lot about the importance of having life insurance in Australia for you and your loved ones. Here is a quick summary of the main types of life insurance available in Australia.

1. Life insurance

Death or terminal illness results in a lump sum being paid to immediate family members such as your children or spouse. This money will go towards any debts, paying the mortgage and your children’s education amongst other things. Grieving over the loss of a loved one is stressful enough without the added worry of having to make sure that the remaining family is financially secure.

2. Total and Permanent Disability Insurance (TPD)

A permanent disability that prohibits you from working will result in a lump sum payment to assist with medical bills, debts and to help you in maintaining the same lifestyle prior to your disability.

There are three main types of TDP insurance:

  1. Own Occupation TDP: The applicant is permanently unable to work within their occupation.
  2. Any Occupation TDP: The applicant has been rendered unable to work within any occupation that they are qualified to work in.
  3. Non – Occupational TDP: The applicant is incapable of carrying out two out of five activities necessary for daily living.

The maximum amount of cover typically available is between $3-$5 million, but it is important to check this with your insurer.

3. Trauma Insurance

A lump sum is paid out if you become a victim of an illness such as stroke, cancer or a heart attack. The money will enable you pay for any unexpected financial burdens, additional treatment or a carer.

There are sometimes exclusions associated with trauma insurance, but it is important to check your policy in detail. For example an insurance company will not make payment if:

  • Trauma occurred as a result of self infliction such as suicide.
  • Trauma occurs from a condition that is not stated within the policy.
  • The trauma is temporary.

4. Income Protection Insurance

If you become incapacitated due to an injury or an illness rendering you unable to work, income protection insurance will support you with usually up to 75% of your present income. It will provide you with cover over a certain period of time. If you suffer from a prolonged or permanent disability, you may even be entitled to payment up until the age of 65.

Restrictions: There are several restrictions associated with this type of insurance:

  • Usually, the deferred period is a minimum of 4 weeks and can run up to 52 weeks. As the deferred period increases, the premiums decrease.
  • There are several exclusions that can lead to non payment. If an injury or accident arises from alcohol or drug abuse, self-harm pregnancy, war or a criminal act. Again it’s worth checking your individual policy in detail.
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