Beneficiary clause of life insurance
Life insurance always includes a beneficiary clause. With this clause, you can name one or several beneficiaries who will receive the life insurance payout in the event of death. When choosing a beneficiary, it is advisable to consider who would be in need of financial support in the event of your death.
The beneficiary clause must always be submitted to the insurance company in writing. You can submit or change your beneficiary clause easily through the My policies section of the op.fi service.
As the policyholder, you will decide on the beneficiary, even if the insured person is someone other than you. This ensures that the payout is paid to the person or persons you have selected. You may also be wondering whether it is possible to have two life insurance policies and several beneficiaries. If the insured person has several life insurance policies, the beneficiaries must be named separately for each policy. If you wish, you can name a different beneficiary for each policy.
Who can be named a beneficiary of life insurance?
Usually, the beneficiaries of life insurance are the most important people in your life, whose future you want to look after. You can also name a foundation or an association as a beneficiary. The beneficiary can be, for example:
- your next of kin
- your spouse or your partner in a registered partnership
- your child or children
- your mother, father or both of your parents
- separately named beneficiaries, such as common-law spouse
- the death estate.
Next of kin as the beneficiary of life insurance
Choosing your next of kin as a beneficiary can include your spouse or your registered partner and your children. If your choose your next of kin as your beneficiary, the life insurance payout is divided between your spouse and your direct heirs, with the former receiving half of the compensation and the other half being distributed between the latter. Choosing your next of kin as a beneficiary is one of the most common types of beneficiary clauses and will help to secure your family's livelihood.
Spouse as the beneficiary of life insurance
Your beneficiary can be your spouse, common-law spouse or registered partner, to whom the insurance payout will be paid in full. If you want your spouse to be the beneficiary, the beneficiary clause should be defined carefully.
The generic beneficiary clause “spouse” does not include a common-law spouse, only a spouse with whom you are married or in a registered partnership. If you want the life insurance payout to be paid to your common-law spouse, you must specifically name them as your beneficiary.
If you wish, you can specify in the insurance's beneficiary clause that the beneficiary’s spouses have no marital right to the death payout paid to the beneficiary or to its yield or to any property obtained in place of the insurance payout, such as any property purchased with the payout.
In situations where marital rights may be relevant, such as a divorce, it is the beneficiary’s responsibility to invoke the beneficiary clause. We therefore recommend that the beneficiary retains the claim settlement decision, in case it is needed as evidence in future.
Child or children as the beneficiary
If the beneficiaries are your children, that is, your direct heirs, the insurance payout is divided between them. Officially adopted children are considered equal to next of kin and children. In contrast, foster children must be specified by name in the beneficiary clause as they are not considered children within the meaning of the Insurance Contracts Act. Underage children will receive unrestricted access to the insurance payout upon turning 18.
In a stepfamily, for example, it may be necessary to include your spouse’s children as beneficiaries also. In these cases, your spouse’s children must be named separately in the beneficiary clause.
A beneficiary in joint life insurance
Joint cover is a life insurance policy for two individuals, each of whom can independently name their beneficiary. In many cases, in joint cover, the spouses are named as each other's beneficiaries. However, in joint cover, only one of the insured persons is the policyholder and they are also consequently responsible for the beneficiary clause.
If one of the insured persons dies, the insurance payout in instances of joint cover is paid in full based on the beneficiary clause of the deceased person. If both insured persons die at the same time, the payout will be divided between the beneficiaries of both parties.
Death estate as the beneficiary
When a death estate is named as the beneficiary, or the beneficiary clause has ceased to be in effect because there are no beneficiaries, the payout is paid to the insured person’s estate. In this case, the payout becomes part of the estate’s assets. From the death estate, the payout will be distributed to the legal heirs or in accordance with the Code of Inheritance.
Note that the estate's debts will first be deducted from any assets. Any amount remaining after the repayment of debts will be divided between the heirs or beneficiaries under the terms of the will.
The tax consequences of the beneficiary clause of life insurance
When naming a beneficiary, please note that the life insurance payout is taxable as either income from an inheritance or as capital income, depending on whether or not the beneficiary is next of kin. If the beneficiary is the insured’s next of kin or their death estate, the payout will be subject to inheritance tax. Life insurance payouts to persons other than next of kin or the death estate will be taxed as capital income. The taxation of insurance payouts is always based on the legislation which is valid at the time of the benefit payment.
The life insurance beneficiary clause supersedes a last will and testament
When the beneficiary clause is in effect, the life insurance payout is immediately paid to the beneficiaries. The beneficiaries can use the funds in the way they see fit, whether to pay off a mortgage, to cover daily expenses or to pay inheritance taxes. The beneficiary does not need to be a distributee of the death estate. The beneficiary clause supersedes any last will and testament, meaning that the testament does not affect the life insurance payout.
For example, the rights of a common-law spouse in the event of death differ from the rights of a married spouse. With the beneficiary clause, you can also ensure a common-law spouse's financial security in the event of death.
Changing your beneficiary
You can change your beneficiary clause at any time while your life insurance policy is valid, by notifying us in writing. Changing your beneficiary clause may be necessary when you have a new baby or a divorce from your spouse. We recommend checking that your life insurance beneficiary remains suitable once a year, or whenever your circumstances change.
The easiest way to do this is through the My policies section of the op.fi service.
What is the difference between the beneficiary in life insurance and in endowment insurance?
Life insurance is an insurance in case of death, whereas endowment insurance, or unit-linked insurance, is a form of saving and investment that includes life insurance. In life insurance, the beneficiary receives the life insurance payout in the event of the insured person's death. In endowment insurance, the beneficiary receives the funds when the policy matures or in the event of the insured person's death.