When someone is nominated as a beneficiary in respect of the death benefits on a policy of long-term insurance, the advantages and disadvantages must be weighed up carefully with your financial planner before a final decision is made. Should a planholder (policyholder) fail to nominate a beneficiary, the proceeds will pay to the planholder’s deceased estate.
Nominating a beneficiary on a policy and ceding a policy to someone are two completely different actions. When a policy is ceded outright to someone that person becomes the policyholder and he/she may deal with it as he/she thinks fit – including nominating beneficiaries!
The proceeds of long-term insurance policies are subject to estate duty as ‘deemed property’ in the estate of the life insured. It makes absolutely no difference whether beneficiaries are nominated or not. The same rule applies to policies ceded outright, where the original policyholder is the life insured on the policy, and dies.
Consult your professional financial planner on all these issues without delay.
Article edited and rewritten by David Thomson, Senior Legal Adviser, Sanlam Trust.