Importance of beneficiary designations on unapproved group life and funeral policies

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It is well known that in the case of individual life insurance policies, an insurer may pay the proceeds of a life insurance policy to the estate of the deceased or alternatively to beneficiaries, named by the deceased before his death. .

Until relatively recently, in the case of group life insurance and funeral policies, in the absence of a designation of beneficiary, employers could indicate to whom the benefit should be paid or, very often, resort to to the decision of the pension fund in the event of an employee’s death as the basis for distribution.

In the case of a funeral allowance, the employer could confirm to whom the allowance should be paid following an interaction with the employee’s family and would instruct the insurer accordingly.

Previous legislation did not prevent the policy document from having terms allowing beneficiaries to be determined by the employer where there was no beneficiary designation. Unfortunately, this is no longer the case.

The definition of “beneficiary” in insurance legislation no longer takes into account that beneficiaries must be determined by the employer, i.e. the “employer’s discretion” which was previously permitted by the previous legislation. Therefore, policy contracts incorporating employer discretion are no longer permitted under insurance law.

This is particularly noticeable in the case of funeral policies which must be paid within a short period of time, usually 2 days, and would cause enormous hardship for the family if the proceeds are paid to the estate, in the absence of a beneficiary. nomination. The family may not be able to fund the cost of the funeral as the proceeds will have to wait for the estate’s lengthy administrative procedures.

The regulator granted a two-year transition period to insurers to modify their insurance contracts and to employees to designate beneficiaries. Unfortunately, a large number of staff have still not completed beneficiary nominations.

In order to ensure compliance with the new requirement and to ensure that the employee’s family receives the benefits, it is essential that employees are required to complete a beneficiary designation form for unapproved death benefits and especially for funeral services. These forms should be stored securely by the company’s human resources department and presented to the insurer upon the death of an employee.

It is also important that employees are encouraged to complete or update their beneficiary designation forms during significant life events, such as marriage, divorce, birth of a child, death of the beneficiary , etc

HR departments should encourage employees to ensure employee beneficiary appointments are up-to-date, particularly in the case of funeral policies.

jenny gordon, Responsible: Technical advice: investments, products and empowerment at Alexander Forbes.

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