Unless you have also provided the life insurer with a list of beneficiaries, your loved ones may be left to struggle financially. Should someone die without having nominated beneficiaries, the life policy will pay the death benefit to an estate.
This is according to Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA). “The family will then have to wait for your estate to be finalised before receiving any payments. This could take between six months and two years.” Since your bank accounts will be frozen upon your death, this could severely impact the family’s immediate ability to access any funds. life insurance
Dempsey says another important reason to nominate beneficiaries is to protect death benefits from creditors and fees. Any outstanding debts would need to be settled before the estate will pay out. This could significantly reduce the amount of money that will finally go to beneficiaries. The proceeds of a life insurance policy will be deemed as property in the estate for Estate Duty purposes. And this is calculated at a further rate of 20 percent of the net amount over R3.5 million after settling any debts. life insurance Should your the policy pay into your estate, this money will also be subject to the executor’s fees (a maximum of 3.5 per cent plus VAT).
“If, however, your client nominated a spouse as beneficiary, the death benefit would be paid directly into a partner’s bank account. This can happen within days following a claim, provided there was no cause for suspicion or further investigation.”
Dempsey adds that as long as you have not ceded the life policy to cover a loan or mortgage bond, your policy will also be exempt from claims from your creditors. In other words, your family will receive the full payment amount you had intended
“Finally, you must also remember that beneficiaries under the age of 18 years may not receive assets from your estate or payments from your life insurance policies. You need to consider the fact that this money will instead be paid into their guardian’s bank account,” cautions Dempsey. “If for any reason you do not want your child’s guardian to have control of their assets, you need to specify that the money should be paid into a trust that is to be formed upon your death. You can then nominate trustees to manage the trust for the well-being of your child,” he explains.
He states that the harsh reality is that the unexpected can and does happen every day where your loved ones will have to live with the consequences. “Although unpleasant, asking the difficult questions and attending to the details is, therefore, a profound act of love for the people you would leave behind. And taking the necessary action to check your policies without delay could mean the difference between sinking and swimming for your family,” he says.