Beneficiary nomination – easier, faster, better

One of the primary goals of financial protection is to provide clients with greater financial certainty, whether covering a mortgage or creating a comprehensive financial plan with various protection policies.

With life insurance, those plans encompass at least another person and sometimes several others. Clearly designating who the life insurance payout is intended for is crucial. It makes sure the money reaches the right person at the right time. The UK Parliament Justice Committee reports that probate waiting times nearly doubled from April 2022 to April 2023, with some cases taking over 11 months¹. Imagine a grieving family waiting that long for a payout, or worse, losing the money under intestacy rules.

There are 2 ways to avoid this: trusts and beneficiary nomination. Beneficiary nomination, introduced by Guardian in 2018, is a simpler and faster way to make sure the life insurance payout reaches the right people, and quickly.

What is beneficiary nomination?

Beneficiary nomination lets clients nominate who they’d like to receive their life insurance payout when applying. If beneficiary nomination has been used and the policyholder dies, the money is payable to the beneficiaries under contract law.

This means any payout doesn’t form part of the policyholder’s estate and isn’t subject to inheritance tax (IHT), so payouts bypass probate and go directly to the most recently nominated beneficiaries.

Beneficiary nomination is a simpler alternative to creating a trust, ideal for straightforward situations. It’s legally binding, preventing disputes and ensuring the benefits are paid to the intended recipients. Beneficiaries must be nominated at the point of application.

At Guardian, we offer beneficiary nomination through our Payout Planner feature. This easy process is part of our online application journey, allowing policyholders to nominate up to 9 beneficiaries for each life cover. They simply provide each beneficiary’s name and the percentage of the payout they should receive. Unlike a trust, there are no trustees, witnesses or signatures needed.

The process is so simple, in fact, that 69% of all Guardian’s life cover policies are under Payout Planner², compared to only 21% of single own life policies written in trust across the industry³. In 2023, Payout Planner accounted for 74% of the life claims we paid, saving an average of 7 months waiting for probate⁴.

Who can be nominated as a beneficiary?

Policyholders can nominate people or organisations, such as a charity.

They can’t nominate themselves, their estate, a trust they (or their estate) benefit from or their creditors. They can’t receive any money or benefit from a nominee in exchange for a nomination.

For mortgage protection, policyholders can’t nominate the mortgage lender but can nominate the person who would be responsible for taking over the mortgage payments, typically the other party in a joint mortgage.

If applying for multiple life covers under a menu plan, different beneficiaries can be nominated for each cover.

Unmarried couples

Beneficiary nomination is particularly important if the life insurance payout is meant for an unmarried partner. Many people assume that a cohabiting partner will automatically receive the payout, but this isn’t the case. Beneficiary nomination ensures that the intended person receives the money.

Can beneficiaries be changed?

Yes, policyholders may want to update their beneficiaries for various reasons, such as marriage, divorce, the birth of a child, or the death of a beneficiary. With Payout Planner, policyholders can easily update their beneficiaries by calling or emailing us. We recommend reviewing beneficiaries annually to ensure choices remain appropriate and details are up to date.

When is setting up a trust more suitable?

Beneficiary nomination is simpler and more straightforward, but it may not provide the same level of control and protection as a trust. It’s often best for uncomplicated situations where the policyholder’s wishes are straightforward.

A trust may be a better option than beneficiary nomination in circumstances, such as:

• Complex family situations: If a client has a blended family, children from previous marriages, or other complex family dynamics, a trust can provide more flexibility over which potential beneficiaries receive a payout and when.

• Tax planning: Trusts can be used to manage and potentially reduce estate taxes, providing a more tax-efficient way to pass on wealth, such as generation-skipping and loan-backs to an older family member.

• IHT bill payment: If the purpose of the cover is to cover an anticipated inheritance tax liability, it’s better to place the cover in a trust which gives away the terminal illness benefit as well as the death payout.
• Control over how the payout is used: Trusts allow clients to set specific terms and conditions for how and when the benefits are distributed, which can be useful if clients want the payout to be used in a certain way.
• Children under 18: Children who are beneficiaries can’t control the money until they’re 18. The funds will be under the control of their guardian. If a client has a clear view around how money might support their children in the event of their death including dependants who may need more support due to special needs, then a trust may be a more suitable option. The trustees can manage the funds until the beneficiaries reach a certain age.

Beneficiary nomination can be replaced by a trust. Any future trust will override the beneficiary nomination. Therefore, setting up a beneficiary nomination during the online application ensures clients are protected while arranging the trust.

Incorporating beneficiary nomination into your sales process

Advisers and mortgage intermediaries are increasingly integrating beneficiary nomination into their advice process. This ensures clients can direct their money where it’s needed most and reflect their preferences in the event of their death. Regular reviews of these policies help adapt to changing client circumstances, whether as part of comprehensive financial plans or ongoing support following a mortgage and protection recommendation.

Easier, faster, better

Beneficiary nomination is an easier, faster and better way to make sure your clients’ life insurance payout goes straight to the policyholder’s loved ones when they need it most.

We hope you’ve found this article useful. For more information about Guardian’s Payout Planner, visit https://adviser.guardian1821.co.uk/probate-payout-planner/ or speak to your Guardian Business Development Manager.

Sources:

1. UK Parliament, Justice Committee launches new inquiry into probate amid concerns over delays and consumer protection, November 2023
2. Guardian Payout Planner usage (5 years), 1 January 2019 – 31 December 2023.
3. Swiss Re, Life claims: a beneficial direction, October 2023.
4. Guardian 2023 claims report. All claims with a decision made from 1 January 2023 to 31 December 2023.