When a claim is made on a life insurance policy, your insurer's payment once the claim is approved is called a benefit. The recipients of this payment are known as beneficiaries.

Who you can name as the beneficiary of your insurance benefit will depend on a few factors, including whether your policy is held inside or outside super.

Who can I name as a beneficiary on my policy?

Outside super, your options are reasonably open

If your insurance policy is held outside super, you can leave your benefit to one or more people, provided they’re over 18.

This could be your spouse or children, your siblings, your parents, a close friend, a business partner – or almost anyone else you choose.

You can also leave the benefit to your estate, where the executor or administrator will distribute the benefits according to your will or to whoever else may be legally entitled to the benefit.

Inside super, the rules are a more complex

If you hold your insurance policy inside super, things get a little trickier.

In this scenario, the trustee of your super fund owns your insurance and is bound to abide by superannuation law. Under this set-up, your beneficiary (or beneficiaries) must be:

• your current spouse (including your de facto)
• your child (any age)
• someone who is financially dependent on you (and they must remain financially dependent on you when you die), or
• Your legal personal representative (the executor of your will or administrator of your estate).

The tax treatment of super death benefits is also different – so the payout your beneficiaries receive may not be tax-free. For example, if you leave your life insurance to an adult child, or if it’s paid as an income stream, like a pension, your beneficiary may have to pay tax. It’s important to seek advice from a financial adviser, tax or legal consultant to understand how this may apply to your situation.

There are also two ways to nominate beneficiaries inside super: a binding or non-binding nomination.

What’s the difference between a binding and non-binding nomination?

Binding nomination

A binding nomination, as the name suggests, means that your super fund trustee is bound to honour the beneficiaries you’ve chosen. Without a binding nomination, the trustee can pay benefit entitlements to beneficiaries at its discretion.

Depending on your insurance product, binding nominations can expire after three years or be non-lapsing (ie the nomination does not expire).

You'll need to complete a binding death benefit nomination form to make this kind of beneficiary nomination. At MLC Life Insurance, our beneficiary nomination form allows you to create binding or non-binding nominations.

Non-binding nominations

Like a non-lapsing binding nomination, a non-binding nomination never expires. However, a trustee isn’t bound to honour your preferences.

So, while the trustee of your super fund will do its best to consider your wishes, they get the final say over who will receive your benefit within the bounds of the law.

It's always a good idea to regularly review your beneficiary nominations, keep them up-to-date, and have these wishes recorded by both your super fund and your insurer.

How often should I review my beneficiaries?

If there’s one certainty in life, it is that things change over time. There’s no hard-and-fast rule around how often you should review your beneficiaries, but a good rule of thumb is to check your beneficiaries alongside big life events. That way, you can help make sure that your loved ones are taken care of and that your insurance benefit goes where you want it to.

The big life events that may tell you it’s time to review your beneficiaries

• Getting married
• Getting divorced
• Having children – or welcoming additional children into a blended family
• The death of a loved one

As with all things insurance, it’s important that you read the product disclosure statement for your insurance product to understand the specifics of your policy. In this document, you’ll find more information about nominating beneficiaries and how benefits are paid by cover type. You should also speak to your financial adviser and tax or legal consultant about your wishes, including making a will and having insurance benefits paid to your estate.