An important aspect of effective financial planning is ensuring that one's loved ones are taken care of in the event of unexpected circumstances. However, despite the best intentions, unclaimed insurance benefits remain concerning. This poses challenges to financial institutions and highlights the importance of nominating policy beneficiaries and maintaining up-to-date records.
According to recent data from the Financial Sector Conduct Authority (FSCA), South Africa is grappling with 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 for Hollard Life Solutions says, “Several challenges contribute to delayed payouts, among some, 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 impacts policy beneficiaries. When no beneficiaries have been nominated the claim is paid to the Estate of the deceased, and beneficiaries can wait a long time to receive funds in such instances, as they would have to wait for the winding up of the Estate to access the funds.
For policyholders, not keeping beneficiary details up to date poses its own set of challenges where some of the legal dependents, such as recently born children, not listed as beneficiaries may not benefit from the proceeds of the policies or they may lack the necessary documentation to prove their claim.
Baboolal urges life insurance policy holders to 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.
“When taking out a life insurance policy, clients are prompted to nominate beneficiaries of the insurance payout,” says Baboolal. “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.”
Baboolal explains that it's essential for policyholders to ensure that their insurance company possesses 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 policy holder’s death, preventing delays that could further burden loved ones financially and emotionally.
Nominating beneficiaries
Choosing a beneficiary for a life insurance policy is a very personal decision, and preferences vary among individuals. Typically, people opt for close family members like spouses, life partners, children, or parents, especially if they are financially dependent.
However, 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 policy holder.
Nominating children
An important aspect that policyholders should be mindful of when nominating beneficiaries, is that if they choose a minor under the age of 18 as a beneficiary, the minor cannot directly inherit the funds or assets. Instead, the policy proceeds are made to their guardian, who administers it until the child turns 18 – which is the legal adult age.
There are other drawbacks to nominating a minor as a beneficiary. Despite the funds being allocated to the minor's guardian, there's 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 have been 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 cautions that 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, it can potentially take months or even years before loved ones receive their funds.
“Therefore, it's crucial for policyholders to regularly review their life insurance policies, particularly after significant life events, to ensure their arrangements align with their current circumstances. This can be accomplished by reaching out to their insurer or financial adviser for guidance and updates,” says Baboolal.
PERSONAL FINANCE