The team at 1life compiled common mistakes that people make when naming their life cover beneficiaries and how to fix them.
1. Not naming a beneficiary
Many of us take out policies in a rush therefore forgetting to name a beneficiary. You could either be too busy with the other questions or you don’t know the full details of your beneficiaries – so you leave the beneficiary section blank intending to fill it in later. If you don’t send these details to your insurer, when you pass away, the claim will be paid into your estate. This will delay payments to your family and defendants.
2. Choosing your estate as beneficiary
When you name an individual as a beneficiary, the full payment from your policy goes directly to that beneficiary. However, if the estate is named as the beneficiary, the estate will only pay your heirs when all your assets have been accounted for and debts paid. And there may also be costs associated. This means that the amount your heirs receive might well be less than it would have been if you had named them as beneficiaries.
3. Not informing the beneficiaries that they are beneficiaries
When you name a person, or persons, as your beneficiary you need to tell them that you have a life or funeral policy, and that they are the beneficiary, so they can claim.
It’s a good idea to also let them know where they can find the policy details and how to claim. Tell them where you keep your policy document which has details of your cover, the beneficiary instruction sheet that explains the claims process, and the claim instruction sheet which has all the details they will need when they claim.
4. Not giving your insurer all the details of the beneficiary
When you name a beneficiary include their first and last name, ID number, contact telephone and email address so your insurer knows exactly who they should pay the claim to and how they can get in touch.If you don’t know the ID number when you take out a policy, make a quick call to or message the beneficiary to get these details for your insurer so that you don’t forget later.
Remember to ask your beneficiaries to let you know if their contact details change, or they change their name.
If you are naming more than one beneficiary, specify the proportion as a percentage of the amount you would like them to receive – for example 50%.
5. Naming minor children as beneficiaries
Unless you set up a trust, in most cases, the claim will be paid into the Guardian’s Fund instead of directly to the children. The Guardian’s Fund is a state-run fund set up to manage monies left to minor children and adult defendants. The rules of the Guardian’s Fund can be quite restrictive and include the provision that only R250 000 of the capital amount left to the minor can be used for specific expenses until the age of 18, when they can receive all the remaining funds.
If you want to make sure that only your children benefit you need to name your children as beneficiaries and set up a trust in your will to administer the insurance pay-out. A trust is a legal entity that holds the assets on behalf of your children and is administered by trustees.
6. Not updating beneficiaries’ details
Your beneficiary might pass away before you, you might divorce or remarry and have more children. If this happens you need to name new beneficiaries.
Set aside some time each year to go through your policies and make sure your beneficiary details are updated. When you update your beneficiaries also check their contact details are correct.
