I’ve been named as a beneficiary on a life insurance policy, but I’m not sure how it all works. What should I expect, and how does the payout process go?
If you’re a beneficiary, you’ll likely be contacted by the executor of the will or the trustees of the policy. The life insurance company doesn’t usually reach out to beneficiaries directly. Once the claim is made, the money is paid to the executor or trustees, and they’ll distribute it.
@Xan
Exactly. The executor handles the estate and makes sure any debts are paid off before distributing the funds to beneficiaries. If the policy is in trust, the trustees can pay you more quickly since they don’t need to go through probate.
If the policy is part of the person’s estate and hasn’t been written in trust, it could be subject to inheritance tax if the estate is worth more than £325,000. But if it’s written in trust, you should receive the money tax-free.
@Kingsley
Yep, my grandmother put her policy in trust, and we didn’t have to worry about inheritance tax on it. It made the whole process easier and quicker.
If there are multiple beneficiaries, the policyholder usually states how much each person should get. The executor will follow the will or the instructions on the policy to distribute the payout accordingly.
@Mal
That’s true. In my case, the will specified percentages for each beneficiary. The executor handled all the details so that it was split up fairly.
If you’re wondering how long it takes, it depends. If there’s no trust, the executor needs to go through probate, which can take a few months. But with a trust, it’s faster since probate isn’t needed.
One thing to remember is that beneficiaries don’t inherit debt. If the estate has debts, they get paid off first, and then the remainder is distributed. So your payout might be smaller if there are large debts.