Super and life insurance
Binding nominations, why your will doesn't cover them. The biggest financial lever most men get wrong.
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Binding nominations, why your will doesn't cover them. The biggest financial lever most men get wrong.
When my friend Tom died at 41, his super balance was $340,000 and his life insurance through the fund paid out another $750,000. The will named his wife as sole beneficiary of his estate. The super and the life insurance, together $1.09m, did not go to her.
They went to his mother. Tom had filled in a non-binding nomination when he started the fund at 23. He'd never updated it.
This is the most expensive paperwork mistake Australian men make.
Superannuation is held in trust. The fund's trustee, not you, owns the money technically. When you die, the trustee decides who gets it. They'll look at your nomination first, but if the nomination is invalid, expired, non-binding, or missing, they fall back to their own discretion.
The will doesn't override the trustee.
Same for life insurance held inside super (which is how 80 percent of Australian fathers hold it).
1. Non-binding nomination. A suggestion to the trustee. The trustee considers it but isn't obliged. Most super funds default new members to non-binding. This is what most men have on file.
2. Lapsing binding nomination. A legally binding instruction to the trustee. The catch: it expires after three years. About 60 percent of binding nominations on file are expired.
3. Non-lapsing binding nomination. A legally binding instruction with no expiry. Australian Super, REST, Hostplus, Aware Super, UniSuper all have it.
The right answer for most men is a non-lapsing binding nomination.
Eligible beneficiaries:
You cannot nominate your mother, father, sibling or friend directly unless they're financially dependent.
For most fathers, the cleanest answer is to nominate the spouse for 100 percent.
Inside super (most common). Premiums paid from your super balance. Cover usually $200k-$1m default. Same trap: if your nomination is wrong, the insurance goes wherever the super goes.
Stepped or level retail policy outside super. A standalone life policy. The policy itself names a beneficiary on a separate form.
Group cover through an employer. Sometimes inside super, sometimes separate.
The 30-minute task is to log into each of these and confirm the nomination is current and goes to the right person.
1. They were set up at age 22 and never revisited.
2. The nomination was binding but lapsed. Three-year expiry on lapsing binding nominations means most are dead by the time they're needed.
3. Multiple funds, not all updated. The average Australian has 1.7 super accounts.
Tom's wife eventually got most of the money through a family provision claim, after eighteen months in the supreme court and about $80,000 in legal fees. Don't make your wife do that.
Update the form. Update it now. Set the reminder.
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