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Col 13: Name and check your beneficiaries

Recently there was report about a Discovery Life Assurance policyholder discovering that an unknown person was listed as a beneficiary of his policy. The problem was caused by a snarl-up at Discovery, which has now apparently been corrected.

The identity number of the claimant was not used and another name with the same birthdate, surname and initials was used instead. Now Discovery is insisting that both the names and identity numbers must be used – as it always should have been.

Discovery says it also uses extensive checking procedures to ensure proper payouts to beneficiaries.

But this does not mean that fraudulent payments to beneficiaries do not take place – often involving older people.

By Bruce Cameron
Co-author of The Ultimate guide to Retirement in South Africa

What is a beneficiary

A beneficiary of a life assurance policy is:

The person or people, who will receive the benefits of a life policy, when the assured person dies;
A life assurance policy includes numerous types of policies from risk assurance paid on death, on funeral benefits and all the way through to the benefits of the residual capital held in an investment linked living annuity (all living annuities are life assurance policies);
The beneficiary/ies must be named in the policy document, preferably with the full name, date of birth and identification (ID or Passport number) of the beneficiary;
When a beneficiary is listed the benefits (the cash) will be paid directly to the beneficiary;
A named beneficiary receives the money no matter what a last testament (will) states. A beneficiary has precedence over any bequest in a will. If two different people are named as a beneficiary and the heir of a will to the same life assurance policy, the beneficiary will get the money;
Apart from receiving the cash benefits, which may be as little as paying for a funeral, there are also tax benefits for beneficiaries. No tax is paid by the estate of the policyholder;
The benefits are taxed in the name of the beneficiary. This could have many advantages. There are also different ways in which the benefits could be paid. For example, on a living annuity the income could be taken as:

- cash, with the full amount of the benefit being taxed in that tax year in the hands of the beneficiary;

- over five years with the annual amount being added to the

tax of the beneficiary for each tax year. This is a big advantage for people on a lower income or for children, who still have to complete their education; or,

- converted to a new living annuity in the name of the beneficiary with the annual income (pension) taxed in each following year. This is useful for partners. The partner would then also name beneficiaries. You do not need to be over the age of 60 to receive an annual income from a living annuity. You can be any age.

Get proper advice

If you are a beneficiary, you should always get help from an independent Certified Financial Planner (CFP), licensed by the Financial Planning Institute (FPI), to find out your options while also taking account of future tax payments.

You must check with the FPI and Financial Services Conduct Authority (FSCA) that the advisor is an FPI member and registered with FSCA.

The other issue is that using a CFP reduces substantially the chances of being subject to fraud – and fraud is very prevalent.

There have been a multitude of scams over the years from people taking out policies on other people and then murdering them. Then there are some very dishonest financial advisers who hold on to the policy documents and name themselves as beneficiaries. As a potential beneficiary you may never know that you have been defrauded.

How to prevent fraud

Make sure, as the policyholder, you always:

Receive all the life assurance contracts you sign;
Make sure you name your beneficiaries; and,
Check on the names of the beneficiaries. The life assurance company must advise you every year of your beneficiaries.

Some years ago, I had a relative who was sold a life assurance risk policy. He did not need the policy as he was 85, he had no dependants and was financially independent.

Not only did the life assurance product-flogger from Old Mutual sell him a policy he not need but the product-flogger made himself the beneficiary. No action was taken by the company after this came to light.

It was yet another case of the dishonest preying on the elderly in this case with the help of the product provider.

It is also a good thing to inform your beneficiaries; or, someone you know and trust about your life policies and the beneficiaries.

There is a lot more detail on this in the book, The Ultimate Guide to Retirement in South Africa. For more information on how to purchase the book go to Buy Now on the website www.retirementplanning.co.za

https://retirementplanning.co.za/col-12-a-better-complaints-system/

https://retirementplanning.co.za/the-two-pot-retirement-savings-system/

https://retirementplanning.co.za/two-pot-system-should-low-income-earners-belong-bruce-cameron/

https://retirementplanning.co.za/watch-your-pension-like-a-hawk/

Share this post

Col 13: Name and check your beneficiaries

Recently there was report about a Discovery Life Assurance policyholder discovering that an unknown person was listed as a beneficiary of his policy. The problem was caused by a snarl-up at Discovery, which has now apparently been corrected.

The identity number of the claimant was not used and another name with the same birthdate, surname and initials was used instead. Now Discovery is insisting that both the names and identity numbers must be used – as it always should have been.

Discovery says it also uses extensive checking procedures to ensure proper payouts to beneficiaries.

But this does not mean that fraudulent payments to beneficiaries do not take place – often involving older people.

By Bruce Cameron Co-author of The Ultimate guide to Retirement in South Africa

What is a beneficiary

A beneficiary of a life assurance policy is:

The person or people, who will receive the benefits of a life policy, when the assured person dies;

A life assurance policy includes numerous types of policies from risk assurance paid on death, on funeral benefits and all the way through to the benefits of the residual capital held in an investment linked living annuity (all living annuities are life assurance policies);

The beneficiary/ies must be named in the policy document, preferably with the full name, date of birth and identification (ID or Passport number) of the beneficiary;

When a beneficiary is listed the benefits (the cash) will be paid directly to the beneficiary;

A named beneficiary receives the money no matter what a last testament (will) states. A beneficiary has precedence over any bequest in a will. If two different people are named as a beneficiary and the heir of a will to the same life assurance policy, the beneficiary will get the money;

Apart from receiving the cash benefits, which may be as little as paying for a funeral, there are also tax benefits for beneficiaries. No tax is paid by the estate of the policyholder;

The benefits are taxed in the name of the beneficiary. This could have many advantages. There are also different ways in which the benefits could be paid. For example, on a living annuity the income could be taken as:

- cash, with the full amount of the benefit being taxed in that tax year in the hands of the beneficiary;

- over five years with the annual amount being added to the

tax of the beneficiary for each tax year. This is a big advantage for people on a lower income or for children, who still have to complete their education; or,

Get proper advice

If you are a beneficiary, you should always get help from an independent Certified Financial Planner (CFP), licensed by the Financial Planning Institute (FPI), to find out your options while also taking account of future tax payments.

You must check with the FPI and Financial Services Conduct Authority (FSCA) that the advisor is an FPI member and registered with FSCA.

The other issue is that using a CFP reduces substantially the chances of being subject to fraud – and fraud is very prevalent.

How to prevent fraud

Make sure, as the policyholder, you always:

Receive all the life assurance contracts you sign;

Make sure you name your beneficiaries; and,

Check on the names of the beneficiaries. The life assurance company must advise you every year of your beneficiaries.

Some years ago, I had a relative who was sold a life assurance risk policy. He did not need the policy as he was 85, he had no dependants and was financially independent.

Not only did the life assurance product-flogger from Old Mutual sell him a policy he not need but the product-flogger made himself the beneficiary. No action was taken by the company after this came to light.

It was yet another case of the dishonest preying on the elderly in this case with the help of the product provider.

It is also a good thing to inform your beneficiaries; or, someone you know and trust about your life policies and the beneficiaries.

There is a lot more detail on this in the book, The Ultimate Guide to Retirement in South Africa. For more information on how to purchase the book go to Buy Now on the website www.retirementplanning.co.za

Related topics:

https://retirementplanning.co.za/col-12-a-better-complaints-system/

https://retirementplanning.co.za/the-two-pot-retirement-savings-system/

https://retirementplanning.co.za/two-pot-system-should-low-income-earners-belong-bruce-cameron/

https://retirementplanning.co.za/watch-your-pension-like-a-hawk/

By Bruce Cameron
Co-author of The Ultimate guide to Retirement in South Africa