And when they do receive it, it's not exactly the happiest moment of their lives.
This is why the payout process should be made as easy as possible, so as not to further distress those that they've left behind.
When an insured person dies, the family must go through a legal procedure before obtaining the full sum, causing unnecessary hassle and undue stress. This is to ensure that the assets are transferred to the right person, which isn't always so clear cut.
For the family to gain ownership of your assets in bank accounts, investments, real estate and life insurance policies, they will need to obtain a Grant of Probate ( GoP ) or Grant of Letters of Administration (GLA). A GoP is applicable when the deceased has left a will and GLAs are required when there isn't a valid will.
If you don't nominate a beneficiary
If you, the policyholder, do not name a beneficiary, insurance companies can only legally pay out an initial sum of up to $150,000 to a "proper claimant" who is legally defined as the executor, spouse, parent, child, sibling, nephew or niece of the deceased1. The rest of the amount is held until a GoP or GLA is granted.
Sounds painful? Well, it is. Going through all that hassle to sort out the paperwork would be the last thing on your mind when you're going through a difficult time.
If you do nominate a beneficiary
When a policyholder nominates specific individuals, the entire amount can be paid out directly to the beneficiary without the hassle of legal procedures.
So if you haven't already done so, ask your financial adviser representative or relationship manager about naming beneficiaries for each of your life insurance plans. A small bit of paperwork today will go a long way in giving comfort to your loved ones when the time comes.
There are different types of nominations you can make but one isn't better than the other. It's all about choosing the one that suits your individual needs.
This is the first of a two-part series. Read Part 2 of our Nomination of Beneficiary series to find out more on the types of nomination available.