CR319
Beneficiary nominations
Beneficiary nominated for proceeds of investment policy on death – policyholder subsequently adding two further lives insured – effect was to prolong the life of the policy until the death of the last-dying life insured – policyholder dying shortly thereafter – no benefit therefore payable to the beneficiary on his death – beneficiary also not entitled either to the proceeds on the maturity date, or to ownership of the policy
Background
1. In February 2007 the complainant’s father had taken out a policy on his life, its maturity date being 5 February 2012. Its maturity value was stated to be R5 million, but if the policy became payable before the maturity date (e.g. on the death of the policyholder) the proceeds would have been less. The complainant, the daughter of the policyholder, had been nominated as the sole beneficiary. The policyholder died on 1 November 2009.
2. On 1 July 2009, however, the suggestion being that he was by then aware that his death was imminent, the policyholder had instructed the insurer to add two more lives to the policy, being his wife (the complainant’s stepmother) and the complainant. A new schedule was delivered to him that reflected the new insured lives. No endorsement was issued to indicate, however, that the death benefit would be paid out on the death of the last dying of the three insured, nor was any mention made of how the position of the beneficiary would be affected. In fact the old policy wording was simply reissued. For this reason the complainant disputed the validity of the amendment of the policy, and she in any event laid claim, as beneficiary, to the proceeds of the policy.
3. Usually the purpose and effect of adding an extra insured life is to ensure, in the event of the early death of the original life insured/ policyholder, that the policy runs until its maturity date so as to enjoy the growth of the policy.
4. At no stage was the complainant’s nomination as beneficiary revoked by the original policyholder.
5. In a will executed on 19 March 2009 the policyholder had appointed a Bank as the executor of his estate but on 18 September, six weeks before his death, he made another will in which he nominated his wife (the complainant’s stepmother) as the executor. Relying on the evidence of an expert witness, the complainant disputed the validity of the latter will on the grounds that her father’s signature had been forged. We were not supplied with copies of these wills, however, and in any event we were unable to comment on the possible effect the will of 18 September, if it was proved to be invalid, might have on the beneficiary nominated in the policy.
6. The policyholder’s wife was appointed by the Master as executor and in due course she applied for a surrender of the policy. The insurer consented and the proceeds were paid into the estate during June 2010.
Discussion
7. The first question to be determined was the nature of the beneficiary nomination. A nomination may be for “ownership” or for proceeds; a nomination for proceeds may be for the death benefit or for the endowment benefit (the “uitkeerwaarde”) or both; and by endowment benefit is meant the benefit payable on maturity of the policy.
8. The complainant’s nomination was not for ownership but for proceeds, and furthermore only for the death benefit. Clause 13 of the policy read as follows:
“Die Belegger kan een of meer begunstigdes aanstel wat die voordeel ingevolge 8 hierbo betaalbaar moet ontvang in die geval van die Belegger se dood, in dié verhouding wat hy bepaal.”
And clause 6 provided:
“Onderworpe aan die bepalings van 7.3 hieronder, en behoudens die bepalings van 5 hierbo, sal [die versekeraar] die uitkeerwaarde aan die Belegger betaal.”
9. The beneficiary was in other words not entitled to claim the endowment benefit. The effect of this was that she would only have benefited from the policy, as it originally read, if her father died. Two advocates assisting the complainant each submitted, however, that she was entitled to claim the maturity benefit , but their reasoning was flawed. She would only have been so entitled if specifically nominated, which was not the case. The insurer would also have had to be willing to accept such a nomination, which was not provided for in the policy.
10. As already mentioned, shortly before his death the policyholder had requested that two more lives insured should be added to the policy, being the complainant and her stepmother. The death benefit would then only become payable to the complainant if all three persons died before the maturity date, which would effectively exclude her from receiving the death benefit.
11. The question arose whether the policyholder had been properly advised by his adviser what the effect of adding extra lives would be. Was he made aware that, by adding the two extra lives, apart from prolonging the life of the policy he thereby effectively excluded his daughter as beneficiary for the death benefit despite the fact that he never revoked her nomination? This was a matter upon which we could not express an opinion because we have no jurisdiction over financial advisers. It was an aspect with which the FAIS Ombud could deal if the complainant wished to rely on it.
12. From the complainant’s point of view it was of the utmost importance to determine whether the amendment of the policy by the addition of two more lives was valid.
13. Clause 20 read:
“Hierdie polis en alle endossemente daarop, tesame met die aansoekvorm en alle skriftelike opdragte wat van tyd tot tyd deur of namens die Belegger aan [die versekeraar] gegee is, verteenwoordig die volledige ooreenkoms tussen [die versekeraar] en die Belegger, en geen wysiging hiervan is geldig of afdwingbaar nie tensy dit deur [die versekeraar] op skrif gestel en aan die Belegger gepos is by sy jongste adres wat die Belegger aan [die versekeraar] verstrek het.”
The meaning of this clause was that the policy, endorsements, application form and all written instructions constituted the contract, and that any amendment would have to be in writing to be effective. In the circumstances, however, we were dealing with a written instruction which complied with clause 20.
14. It was by signing the Investment Amendment Request on 31 July 2009 that the policyholder gave a written instruction to the insurer to add the two insured lives. This was, however, merely an offer. In response the insurer delivered to the policyholder the amended policy schedule containing the names of the three lives insured, which constituted an acceptance of the offer. It is true that this was not followed up by an endorsement to the effect that the death benefit would only pay out on the death of the last dying of the lives insured, but the question was whether this meant that the amendment of the policy was not completed.
15. It seemed to us that in accordance with clause 20 the written instruction by the policyholder followed by the new schedule, whereby the policyholder’s offer was obviously accepted in writing, was sufficient for amending the policy. The conclusion was that the additional lives had prima facie been validly added but this did not mean that the beneficiary nomination had been revoked, either expressly or tacitly. The nomination still stood but the beneficiary nomination, as stated above, was for no more than the death benefit.
16. The next question was whether the death benefit could become payable any other time than on the death of the last life insured, and we were satisfied that it could not. Accordingly the death benefit in the policy did not become payable on the death of the complainant’s father.
17. It is usually emphasised that a policy with a beneficiary nomination does not form part of the policyholder’s estate – see for instance Pieterse v Shrosbree NO and others 2005 1 SA 309 (SCA) and the more recent decision of the SCA in Oshry NO and another v Feldman 2011 All SA 124 (SCA). In the latter case the SCA pointed out that where the beneficiary nominations are not revoked during the deceased’s lifetime, the beneficiaries should be afforded an opportunity to accept the benefit, in saying so emphasising that an executor is obliged to deal with an estate according to legal prescripts. These cases are, however, distinguishable, since they do not deal with policies with more than one life insured. If there is only one life insured the policy comes to an end on the death of that life insured, but as explained above the policy continues where there is more than one life insured.
18. It was not clear whether the executor of the estate had the right to surrender the policy. This question would not affect the complainant’s rights under the policy, however, but only the value of the policy benefit accruing to the estate. We had not heard the executor on this question, and could accordingly make no ruling that might affect the rights and obligations of the executor. We therefore made no determination in this regard.
Result
19. Our final ruling confirmed that –
• the policy proceeds did not become payable to the complainant beneficiary on her father’s death, because the proceeds were not yet payable as the other lives insured were still alive;
• the complainant had only been nominated for proceeds on death, and not for any other benefit. She was therefore not entitled to the proceeds on the maturity date, or to ownership of the policy.
SM
January 2012
