Employees must nominate beneficiaries on unapproved group life and funeral policies

Employees must ensure they have nominated beneficiaries on their unapproved group life and funeral policies. If they don’t, the benefit will be paid to the deceased estate, incurring unnecessary delays and costs.

This caution comes from Jenny Gordon, the head of technical advice: Investments, Product and Enablement at Alexander Forbes.

Until relatively recently, Gordon says, in the case of unapproved group life and funeral policies, in the absence of a beneficiary nomination, employers were able to direct to whom the benefit should be paid.

Previous legislation did not prevent the policy document having terms allowing for beneficiaries to be determined by the employer where there was no beneficiary nomination.

This is no longer the case.

The definition of “beneficiary” in the Insurance Act of 2017 does not allow for beneficiaries to be determined by the employer, Gordon says. Therefore, policy contracts incorporating employer discretion are no longer permitted.

This is particularly significant in the case of funeral policies, which must be paid out in a short space of time, usually two days. Paying the proceeds to the estate, in the absence of a beneficiary nomination, could result in hardship for the family. They might be unable to finance the cost of the funeral, as the proceeds will have to await the time-consuming administration procedures of the estate, Gordon says.

The Prudential Authority provided a transition period of two years for insurers to amend their policy contracts and for employees to appoint beneficiaries.

“Unfortunately, a great number of employees have still not completed beneficiary nominations,” she says.

To ensure compliance with the new requirement and to ensure that the employee’s family receives the benefits, it is crucial that employees are required to complete a nomination of beneficiary form for unapproved death benefits and especially funeral benefits. These forms should be stored by the company’s HR department and presented to the insurer upon an employee’s death.

Employees should be encouraged to update their nomination forms at important life events, such as marriage, divorce, the birth of a child, or the death of a beneficiary.