Your life assurance policy, endowment, retirement annuity including your benefits provided by your company all have the facility to nominate a beneficiary. This is an import consideration in your financial planning as you want to ensure that the right person ends up with your hard earned provisions.
Another very important aspect to note is that by having a nominated beneficiary the service provider can payout the proceeds outside your will in the event of your death. This gets the money to the beneficiary much more quickly than having to wait for the your estate to wind up (which could take years). You also end up saving a fortune in executor fees with a nominated beneficiary.
This amounts to 3,5% plus VAT on the value of the policy which is particularly significant on life assurance policies which can be worth millions on payout.
Here are 3 mistakes to avoid…
Nominating a child as a beneficiary
As children under 18 years old are minors they cannot contract and cannot receive the proceeds without a guardian. Your will should take care of this provision for minors and you should rather nominate your estate as the beneficiary in this instance. Be careful to ensure your will is updated and valid as the proceeds for your minors could end up with the Guardian’s Fund which is administered by the Master of the High Court which could prove to be very restrictive.
Not taking ownership of policies at Divorce What is often overlooked in a divorce are the changes that need to be made on your policies. If the “Ex” is the nominated beneficiary then the proceeds will be paid accordingly. When settling your divorce agreement ensure that the right beneficiaries on your policies are in place. Better still take ownership of the policies that you settle for. This way your “Ex” won’t be able to change the beneficiaries without your knowledge. You will also be able to track the payment of the policies as you will be notified by the assurer if and when payments are not met.
Ignoring your group benefits Group Life assurance provide by your employer and your pension or provide fund should have a nominated beneficiary. In the case of the pension fund the beneficiary nomination acts more like a “letter of wishes” as the regulations leave the trustees of the fund with an obligation to check if there are any other dependents. The trustees then can make the call to allocate the proceeds according to the level of dependency. Your nomination of a beneficiary will at least act as a guide for the trusteeshelping them understand whom you would like to benefit.
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