It is well known that in the case of individual life policies, an insurer may pay the proceeds of a life policy to the deceased estate or alternatively to beneficiaries, nominated by the deceased prior to death.
Until relatively recently, in the case of unapproved group life and funeral policies, in the absence of a beneficiary nomination, employers were able to direct to whom the benefit should be paid or very often use the retirement fund’s resolution in respect of the death of an employee as a basis for distribution.
With a funeral benefit, the employer could confirm to whom the benefit should be paid following interaction with the employee’s family and would instruct the insurer accordingly.
Previous legislation did not prevent the policy document having terms allowing for beneficiaries to be determined by the employer where there was no beneficiary nomination. Unfortunately, this is not the case anymore.
The definition of “beneficiary” in the Insurance legislation no longer makes allowance for beneficiaries to be determined by the employer i.e. the “employer discretion” which was previously permitted under the previous legislation. Therefore, policy contracts incorporating an employer discretion are no longer permitted by the Insurance legislation.
This is especially notable in the case of funeral policies which must be paid out in a short space of time, usually 2 days, and would result in tremendous hardship for the family if the proceeds are paid to the estate, in the absence of a beneficiary nomination. The family might be unable to finance the cost of the funeral as the proceeds will have to await the time consuming administration procedures of the estate.
The Regulator provided a transition period of two years for insurers to amend their policy contracts and for employees to appoint beneficiaries. Unfortunately, a great number of employees have still not completed beneficiary nominations.
To ensure compliance with the new requirement and to ensure that the employee’s family receives the benefits, it is crucial that employees are required to complete a nomination of beneficiary form for both unapproved death and especially funeral benefits. These forms would need to be safely stored by the company’s HR department and presented to the insurer upon an employee’s death.
It is also important that employees are encouraged to complete or update their nomination of beneficiary forms at important life events, such as marriage, divorce, birth of child, death of beneficiary etc
HR departments should encourage employees to ensure that employees beneficiary nominations are up to date, especially in the case of funeral policies.
Jenny Gordon, Head: Technical Advice: Investments, Product and Enablement at Alexander Forbes.