Every insurance policy has three roles: the person who takes it out and pays for it, the person who is covered, and the person who receives the payout. With funeral expense insurance these are often different people – getting this set up correctly is at the heart of the product.
- The policyholder takes out the policy and pays the premium; the insured is the person whose life the cover relates to.
- The beneficiary receives the payout – where one is named, typically independent of probate.
- These roles can be split: it's common for an adult child to be the policyholder while a parent is the insured.
The three roles
Policyholder: signs the policy, pays the premium, and holds the right to make decisions about it – changes and beneficiary nominations are initiated by this person. Insured: the cover relates to this person's life; the payout becomes due on the insured's death. Beneficiary: receives the payout. If the policyholder and the insured are not the same person, taking out the policy typically also requires the insured's written consent – this isn't a formality, it exists to make sure everything happens with everyone's knowledge.
Typical family setups
The most common setup: the policyholder, the insured and the person paying the premium are all the same – for example, a retired parent – with a child or spouse named as beneficiary. Also common: an adult child as both policyholder and payer, with a parent as the insured – a separate article covers this situation. For married couples, there's also the question of whether to take out one policy or two – the article for couples explores this. Some products on the market also cover two insured people under one policy.
Why is naming a beneficiary the key step?
If a beneficiary is named in the policy, the payout goes directly to that person – typically it doesn't form part of the estate, and there's no need to wait for probate to conclude. If no one is named, the payout typically falls into the estate and reaches the heirs only once probate has concluded – which loses exactly the product's most valuable feature. A beneficiary can be named or changed later too – a separate article explains how.
What's worth reviewing from time to time?
Life changes: divorce, a birth, a move, a death in the family – and the roles set out in the policy can be updated to match. It's worth checking on each anniversary: is the beneficiary still the right person, are the contact details correct, does that person know they're named in the policy. On request, or if it's warranted, I help with this too. An outdated nomination isn't a dramatic problem – but it's far easier to sort out in a calm moment than to explain afterwards.
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