DODGE RAM
Rosch

ADVERTORIAL

OLD MUTUAL

FAMILY BUSINESS

Why a beneficiary nomination on a life policy

Nominating a beneficiary on a life policy will allow a person to reduce estate costs at death and also ensures that the proceeds of a life policy end up in the hands of the intended recipient”

 

Natalie has been a legal advisor with Old Mutual since 2003. She has a Bcom(Law), LLB and an Adv Post Graduate Diploma in financial planning. Natalie is a CFP designate.

 

Where the proceeds of a life policy are intended for a specific person, the only way to ensure that the intended person receives the full benefits payable under the life policy, is to nominate the person as a beneficiary of the policy proceeds. This is generally done by completing the relevant life insurance company’s beneficiary nomination form and submitting it to the company for them to note in their records.

 

Where no beneficiary is nominated on the life policy, the proceeds of the policy pay directly into the estate of the life assured (the deceased). This is the case even where the deceased’s last will and testament stipulates that the policy proceeds must pay to a specific party. Naming a party in a will to receive the proceeds of a life insurance policy, is not recognised by the insurance company as a beneficiary nomination.

 

In this regard it is also important to keep beneficiary nominations on a life policy updated since the beneficiary nomination on a policy will override any instruction contained in a will.

 

Where a life policy pays into an estate, the executor is entitled to claim executor’s fees of 3.5% plus Vat on the full value of the proceeds that pay into the estate.

 

The proceeds will also be available to the executor to settle any liabilities as well as any costs and taxes that need to be paid by the estate. The excess, if any, will form part of the deceased’s estate that is to be distributed in terms of the deceased’s will

 

Where a beneficiary has been nominated on a policy, the proceeds bypass the estate and pay directly to the nominated beneficiary. The executor will thus not be entitled to charge an executor’s fee on the policy proceeds.

 

The South African Courts have confirmed that a beneficiary nomination on a policy gives rise to a contract for the benefit of a third party. This means that the life insurance contract is entered into between the policyholder and the insurer and that the nomination of the beneficiary gives rise to a contract for the benefit of a third party (i.e. the nominated beneficiary) – the nominated beneficiary, however, only acquires their right to the policy proceeds at the death of the life assured.

 

The policy proceeds cannot be utilised by the executor to cover any costs or pay any taxes that are due by the deceased’s estate. Even where the deceased’s estate is insolvent, the policy proceeds are totally protected.

 

The simple act of nominating a beneficiary on a policy creates a saving in executor’s fees. It also ensures that the full policy proceeds reach the intended recipient and can never be used for any liquidity need that arises in the estate of the deceased.

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ADVERTORIAL

OLD MUTUAL

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