April 17, 2010
 By Bruce Cameron
You can save your dependants a great deal of trouble if you name benefic- iaries to the proceeds of a life assurance policy, whether it is an investment or a risk policy that pays out on death, because the life company will pay the money to them directly.
If you do not name a beneficiary, the money must be channelled through your estate.
However, Brian Galgut, the Ombudsman for Long-term Insurance, warns it is vital that you update your nominated beneficiaries, particularly if there has been a change in your personal circumstances, such as divorce, the death of a beneficiary or the birth of a child.
And, Galgut says, naming your beneficiaries is also a way to protect against fraud and the resulting hassles, particularly if a life company has been lax in paying the benefits.
Last year, as a result of Galgut's intervention, a funeral assurance company (which the ombudsman did not name) had to pay out twice on the same policy: once on a fraudulent claim and then on the rightful claim, because the life company decided to make up its own payment rules.
Mr M took out a funeral policy in 1994. He did not nominate a benefic-iary. Mr M and his wife were divorced in April 2000. Mr M passed away in January 2003. The life assurance company paid the death benefit to Mrs M, who claimed the benefit, saying she had been married to Mr M at the time of his death.
In February, a competing claim was lodged by Ms N, Mr M's common- law wife, in her capacity as the executor of Mr M's estate. The life company refused to pay the estate, saying it had paid Mrs M in good faith.
It told Ms N to claim the benefit from Mrs M, stating: "We won't pay out this claim twice because of the dishonesty of the ex-spouse."
Galgut found in favour of Ms N. He says there was no provision in the policy document that authorised or justified paying the benefit to the ex-spouse when she had not been a nominated beneficiary. In the absence of a named beneficiary, the benefit should have been paid to the estate.
The life assurance company said it was its standard practice to pay the benefit to a legal spouse or an undertaker, and that if there was no legal spouse, the benefit was paid to the deceased's estate.
Galgut says the fact that the insurer was misled by the deceased's ex-spouse into believing that she was still married to the deceased at the time of his death was no defence against the claim by the rightful claimant, the deceased's estate.
He says companies should ensure that claims are paid out in terms of policy provisions and not in accordance with their standard practice if it is not supported by the policy.
  
 
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