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It is crucial to nominate the correct beneficiaries on your life insurance policies to ensure that the claims process goes smoothly for your loved ones so that they are properly looked after when something happens to you.
This is also an important aspect of effective financial planning but despite the best intentions, unclaimed insurance benefits piling up remain concerning and pose challenges to financial institutions.
According to recent data from the Financial Sector Conduct Authority (FSCA), there is a significant sum of unclaimed assets. In 2022 alone, the country reported a staggering R88.56 billion in unclaimed assets, with unclaimed life insurance benefits constituting a notable 38% of this total, Avinash Baboolal, senior claims manager at Hollard Life Solutions says.
“Several challenges contribute to delayed payouts, including policyholders not nominating beneficiaries or in some instances failure to update their beneficiary details.”
Baboolal explains that not nominating beneficiaries poses a challenge that affects policy beneficiaries. “When no beneficiaries were nominated, the claim is paid to the estate of the deceased and beneficiaries can wait a long time to receive funds in these instances, as they would have to wait for the winding up of the estate to access the funds.”
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For policyholders, he says, not keeping beneficiary details up-to-date poses its set of challenges where some legal dependants, such as recently born children, are not listed as beneficiaries and may not benefit from the proceeds of the policies, or they may lack the necessary documentation to prove their claim.
“Life insurance policyholders must ease this burden by nominating beneficiaries and keeping their beneficiary details up to date, such as in the event where a new child is born. Keeping life insurance policies up to date with nominated beneficiaries enables insurance companies to facilitate smooth and timely payouts in the unfortunate event of the policyholder’s passing, and in turn avert potential financial and emotional strain on loved ones.”
Baboolal says when taking out a life insurance policy, clients are prompted to nominate beneficiaries of the insurance payout. “Policyholders have the flexibility to nominate multiple beneficiaries, with the option to amend these beneficiaries as their life circumstances change. However, we are seeing a concerning trend where policyholders forget to nominate beneficiaries and subsequently the claim is paid into the estate of the deceased.”
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He points out that it is essential for policyholders to ensure that their insurance company has the full names, ID numbers and contact details of their designated beneficiaries, including email addresses or other ways to communicate.
“This ensures efficient and effective coordination in the event of a claim, allowing a smooth and prompt payout in the event of a policyholder’s death, preventing delays that could further burden loved ones financially and emotionally.”
Choosing a beneficiary for a life insurance policy is a very personal decision and preferences vary among individuals, Baboolal says. Typically, people opt for close family members like spouses, life partners, children, or parents, especially if they are financially dependent.
However, he says, the decision to notify beneficiaries can be a very tricky matter. “On the one hand, informing them ensures they are aware of the policy and can make a claim if necessary. On the other hand, premature disclosure may invite unwanted attention from individuals seeking access to the funds sooner.”
Insurance companies often have to navigate complex family dynamics during the claims stage, where disputes may arise from alternative family members or children not nominated as beneficiaries by the policyholder, he says.
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An important aspect that policyholders should be mindful of when nominating beneficiaries, is that if they select a minor under the age of 18 as a beneficiary, the child cannot directly inherit the funds or assets. Instead, the policy proceeds are made to the child’s guardian, who administers it until the child turns 18, the legal adult age.
Baboolal says there are other drawbacks to nominating a minor as a beneficiary. “Despite the funds being allocated to the minor’s guardian, there is a risk that the intended recipient may not receive the funds. Furthermore, complications may arise if multiple guardians are involved in the process.”
In cases where no guardians were appointed for the child, the benefit is deposited into the Guardians Fund, overseen by the Master of the High Court. While this safeguards the minors’ benefits, accessing the funds can be a lengthy process, Baboolal warns.
“If no beneficiaries are nominated, the benefit is directed into the policyholder’s estate. This entails consolidating the deceased’s assets and liabilities. However, dispersing the assets from the estate can also be a lengthy process, and it can potentially take months or even years before loved ones receive their funds.”
Therefore, he says, it is crucial for policyholders to regularly review their life insurance policies, particularly after significant life events, to ensure their arrangements align with their current circumstances.
