In the event of your death, if there is no beneficiary nomination on your policies, the life cover which is paid in terms of the policy will be paid into your deceased estate. The implications of this could be quite serious and have unintended consequences. Two examples are set out below:
Depending on the wishes expressed in your Last Will and Testament, if life assurance proceeds are paid into your estate, they may be subject to estate duty;
Should your estate have any risk of being declared insolvent on your death, serious consideration must be given to nominating beneficiaries on all life policies on your life. This will protect your nominated beneficiaries from your creditors. This legal reasoning was confirmed in a judgement in the case of Shrosbree NO v Love 2005 (1) SA 309. The facts are that the life assured was insolvent upon death. The court decided that when a person takes out a life policy and nominates a beneficiary, the contract is a stipulatio alteri which is a contract for the benefit of a third person. The beneficiary has an enforceable right against the insurer and the estate does not enter the picture at all. Therefore, the creditors cannot attack the proceeds of the policy in the hands of the beneficiary.
Please give one of our financial advisors a call to check the beneficiary status of all your policies and to provide guidance and assistance where necessary.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)