As the new year begins, it is the ideal time to review your financial affairs and make sure your life insurance policies have the correct beneficiary nominations, according to the National Financial Ombud Scheme South Africa (NFO).
The NFO says properly nominating beneficiaries ensures that the proceeds are paid promptly to the intended parties, saving time and executor fees.
When a policy has a valid beneficiary nomination, it doesn't form part of the estate, and the proceeds are paid directly to the beneficiary upon the policyholder's death. This can save significant time and money on executor fees, it says.
"When there is a valid beneficiary nomination on a policy, the policy does not form part of the estate, and the proceeds upon death are paid directly to the beneficiary, thereby saving time and money on executor fees," the NFO says.
The NFO describes itself as a single, one-stop, dispute resolution service made up of four former longstanding industry ombud schemes: the Ombudsman for Short-Term Insurance, the Ombudsman for Long-term Insurance; the Credit Ombud and the Ombudsman for Banking Services. Services are provided free of charge.
A case recently shared by the Lead Ombud of the Life Insurance Division and ruled on by the appeal tribunal of the NFO highlights the importance of communicating beneficiary nominations to insurers.
For confidentiality, the NFO says the policyholder, in this case, is referred to as Mr X. He had nominated his minor daughter as the beneficiary of his life assurance policy. However, two months after his death, the insurer received an updated beneficiary nomination form from Mr X’s broker, substituting the child's nomination with that of a family trust with different beneficiaries.
Hours after confirming the change, the broker informed the insurer of Mr X's death. The trust then lodged a claim, and the benefits were paid into the trust's account.
Mr X's ex-wife discovered the policy and the daughter's nomination as the beneficiary only after the payment to the trust. According to the NFO, despite her enquiries, the broker, citing confidentiality, did not disclose the nomination details.
The ex-wife's claim on behalf of her daughter was declined by the insurer, which stated it had paid the correct beneficiary. The insurer relied on an investigation that validated the signature on the new nomination form, it said.
The NFO says the complaint was initially deemed best decided by a court due to potential third-party rights, namely the trust. However, upon appeal, the NFO’s tribunal overturned this decision.
The tribunal stated that the real complaint was about the contractual relationship between the insurer and the insured, to which the trust was not a party.
The tribunal clarified that the nomination must be communicated to the insurer. Even if not explicitly stated in the contract, it was implied. The daughter was entitled to the policy benefits upon Mr X's death and was not deprived of that right by the trust's nomination. The insurer was instructed to pay the benefit to the child's guardian, which they complied with.
The NFO says if the deceased’s intention was to have the proceeds paid to the family trust, the nomination should have been submitted to the insurer while he was alive, not left in a desk drawer. This would have prevented the dispute.
"Save your loved ones trouble, it does not take up much time. Check your beneficiary nominations and that the insurer has a record of it and contact details for the beneficiary, especially if a significant life event has recently occurred," the NFO says.
PERSONAL FINANCE