Benefits paid out under life insurance policies are allocated as per the insured person’s will – upon signing the agreement, they designate beneficiaries. Who can be a beneficiary? Are donations on account of death of a relative taxed? Who will receive the benefit if no beneficiaries were designated? We answer all these questions.
Concluding an agreement with an insurer may bind us with them for many years. Therefore, it is worth knowing who can become a beneficiary and to what extent.
A beneficiary – who is it?
A beneficiary is a person specified by name by the insuring party upon signing an agreement with the insurer as a person authorised to receive funds from the insurance policy. Compensation is paid if a specific insured event has occurred, such as the death of the premium payer. It is worth knowing that a beneficiary is not the same as an inheritor. A person who has been included in the last will but not on the list of beneficiaries is not entitled to compensation. However, there are some exceptions: if the insured person has not specified their beneficiaries or if the beneficiaries have died before them, the compensation may be received by an inheritor.
Who is the main beneficiary?
When signing up an agreement with an insurer, the main or alternative beneficiary is specified. The main beneficiary is a person who, if an insured event occurs, is entitled to first receive funds from the insurance policy. Usually, it is the spouse or life partner (some insurance companies treat life partners as spouses). Compensation received on account of the death of the insured person can be allocated to any purpose, from paying off current liabilities, e.g. mortgage, to financing ongoing expenditures or studies for children.
Who is the alternative beneficiary?
The alternative beneficiary is a person who will receive insurance benefits when:
- the main beneficiary dies at the same time as the insured person or prior to that;
- the main beneficiary wilfully contributes to the death of the insured person, resulting in losing their right to the benefit.
In case both the main and the alternative beneficiary die before the premium payer, the compensation to which they would be entitled will be divided in accordance with the rules specified in General Terms of Insurance: usually, the benefit is received by family members, e.g. the children of the insured person.
Who can be designated as a beneficiary in a life insurance policy?
The beneficiary can be any person, from the spouse, to children, to siblings, parents or cousins. The beneficiary does not necessarily have to be a relative of the insured person – compensation can also be provided to a life partner, best friend, acquaintance, neighbour, siblings’ children, in-laws, business partner or even to a specific institution, e.g. a bank or a charity. It is particularly important to specify the beneficiary in the case of people remaining in informal relationships – for compensation to be provided to their loved one rather than their relatives, a relevant provision in the agreement is required.
Can more than one person be specified as a beneficiary?
When concluding an insurance agreement, more than one beneficiary can be specified. For this purpose, the main beneficiary and the alternative beneficiary need to be specified. It is also possible to specify further beneficiaries, and even to determine what percentage of the compensation sum is to be received by each such beneficiary. An example of a division of funds:
- 75% for the main beneficiary, e.g. the spouse;
- 25% for the alternative beneficiary, e.g. a brother.
In the case of 3 people, the sum can be divided as follows:
- 50% for the main beneficiary, e.g. the spouse; 25% for alternative beneficiaries each, e.g. a sister and a brother;
- 50% for the main beneficiary, e.g. the spouse; 25% for an alternative beneficiary, e.g. a parent; 10% for further beneficiaries each, e.g. a sister and a brother; and 5% for a specific institution (e.g. a bank at which a mortgage loan was drawn).
Sometimes, it is the insurer that specifies the order of beneficiaries receiving compensation. Usually, they are:
- a spouse or a life partner – such person receives compensation in full;
- children, parents, other statutory heirs of the insured person – further beneficiaries can receive compensation in equal parts.
How can we designate a person as a beneficiary?
Specifying a beneficiary does not require a lot of formalities. To do so, it is necessary during the signing of the agreement to provide the details of a person or institution that is to be made a beneficiary. In the case of natural persons, it is usually enough to provide: name and surname, PESEL Polish Resident ID No., and date of birth. If funds are to be provided to an institution or organisation, it is necessary to provide: full name, REGON business ID no., and address.
Interestingly, most insurance companies allow changing beneficiaries during the term of the insurance agreement. A request to change a beneficiary can be made during a personal visit at an office of the insurance company or remotely, by filling in an appropriate application and sending it by mail or e-mail. This way can also be used to inform the insurer about a change in the details of the beneficiaries — thus, the payer is assured that the money will be provided to the specified person and that the payment will be made faster. Modifications can be made also after buying insurance cover and a bank can be specified as a beneficiary — to do so, the insured person needs to visit an office of the insurance company and provide it with the details of the selected institution. This solution is often used by those who have concluded a loan agreement after buying an insurance policy.
Under which life insurance policy can funds be inherited?
The beneficiary may receive funds from different insurance policies – in the case of protection insurance (individual, term and non-term), they are entitled to the entire premium paid. Whereas in the case of mixed policies, e.g. protection and investment insurance, they will receive compensation and can inherit investments.
When will the beneficiary receive benefits from a life insurance policy?
Each policy has exclusions of liability – they are situations in which the insurer can refuse to pay compensation to beneficiaries. The insurer may refuse to pay compensation if:
- the death of the premium payer resulted from being subjected to procedures of a medical nature without medical supervision;
- the death of the premium payer was the result of a committed or attempted crime;
- premiums were not paid on time;
- the death was caused by the fault of the premium payer – g. it occurred when driving a car under the influence of alcohol, in a brawl or while doing high-risk sports;
- the insured person committed suicide before the expiry of 2 years from signing the agreement;
- the insured person was in an area of war activity;
- the insured person was subjected to nuclear (radioactive) contamination.
For this reason, it is always worth making oneself familiar with provisions on liability exclusions in General Terms of Insurance before signing an agreement. Their knowledge will allow avoiding unpleasant situation in the future.
What to pay attention to when choosing a life insurance policy?
Before signing an agreement, it is worth carefully checking whether everything is as we intended. During a conversation with an agent, it may happen that we change our mind regarding the insured sum or the scope of cover, effectively resulting in choosing a different policy, which we may be not aware of. We should read the agreement as thoroughly as possible in order to avoid unpleasant surprises in the future and to learn e.g. how and where claims can be made.
It is also very important to pay attention to the grace period, i.e. a period after the signing of the agreement during which the premium payer is not entitled to insurance cover yet. If an event occurs during such time, the insurer may refuse to pay compensation. The grace period usually lasts from a few to over a dozen months, depending on the terms of the policy.
Where can you find good life insurance?
A good life insurance policy provides financial help in multiple different situations: it is a product that protects not only the relatives of the insured person, but also the insured person themselves. How to find insurance ideally tailored to one’s needs? This requires a few days spent on researching available offers and comparing them.
However, if we do not want to waste time, there is a simpler option in the form of an insurance comparison service. This smart tool first collects relevant information and then sifts through available offers to present those which best match our needs. Only then can you start arranging meetings with insurance agents to choose the perfect insurance policy.