A Suggested Template for Beneficiary Nominations

• Jurisdiction: South Africa
• Date: 25 May 2019
• Citation: (2009) 21 SA Merc LJ 1
• Pages: 1-32
• Author: MFB Reinecke
• Published date: 25 May 2019

Articles

A Suggested Template for Benef‌iciary

Nominations

MFB REINECKE

Emeritus Professor of Private Law, University of Johannesburg

Assistant Ombudsman for Long-Term Insurance, Cape Town

PM NIENABER

Retired Member of the Supreme Court of Appeal, Bloemfontein

Formerly Ombudsman for Long-Term Insurance, Cape Town

Introduction

1. Benef‌iciary nominations are an integral but controversial part of

insurance law. The controversial aspects are partly attributable to the

assimilation of benef‌iciary nominations with contracts in favour of third

parties,a topic that in academic and even judicial circles continues to be

polemic.

1

Most if not all of the run-of-the-mill uncertainties have been

pre-empted by express provisions in standard policies, but some facets remain

troublesome or yet unexplored. This article aims to survey the entire f‌ield of

benef‌iciary nominations and to map a course for negotiating questionable or

uncharted areas.

Performance

2.An insurer is required to render its performance in terms of the

provisions of the policy. By doing so, it discharges its primary obligation.

2

That will normally be the payment of a sum or sums of money,

3

the proceeds

of the policy,

4

but it may also be the delivery of a service, as is sometimes the

case in health, disability, or funeral insurance.

1

See, eg, Schalk van der Merwe, LF van Huyssteen, MFB Reinecke & GF Lubbe Contract: General

Principles 3 ed (2007) in par 9.2.5; MFB Reinecke, Schalk van der Merwe, JP van Niekerk & Peter

Havenga General Principles of Insurance Law (2002) ch 15.

2

In general, see Vander Merwe, Van Huyssteen, Reinecke & Lubbe op cit note 1 in par 13.

3

On payment in general, see Reinecke, Vander Merwe, Van Niekerk & Havenga op cit note 1 in par

440; Vander Merwe, Van Huyssteen, Reinecke & Lubbe op cit note 1 in par 13.2.3.

4

On the surrender by the policyholder of a policy with a cash value, payment is to be made of the

then investment value (as def‌ined in reg 5.2 of Regulations to the Long-term Insurance Act 52 of 1998).

Cf Mutual Life Insurance Co of New York v Hotz 1911AD 556. Since the surrender and the payment

both occur in terms of the provisions of the policy, the resultant payment may be regarded as a form of

alternative performance.

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(2009) 21 SA Merc LJ 1

© Juta and Company (Pty) Ltd

3.Payment is in the f‌irst instance to be made pursuant to the occurrence

of the insured event. That can be the maturity date or the death, birth, illness,

injury, disablement or retrenchment of the insured life. But it can also be

when the policy is surrendered.

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4.Payment is normally to be rendered by the insurer to the policyholder

or to his authorised agent. The policy may also require payment to be made to

a person other than the policyholder. This outsider may be either a mere

recipient, or the third party in a so-called third-party contract. The distinction

between these two situations may be subtle but is nevertheless real. It hinges

on the intention of the parties to the policy: the policyholder and the insurer.

In the f‌irst situation, the third party

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is a mere passive receiver, an

accommodation address, as it were, where performance is to be rendered.

7

He

can receive payment but he cannot claim it from the insurer. The second

situation is more common in the insurance world. This is where the policy

provides for the nomination by the policyholder of a third party as a

benef‌iciary, either in the policy itself or later.That is the situation discussed

below.

Nominating a Beneficiary

5.The nomination of a benef‌iciary simply means the identif‌ication of a

person other than the policyholder to whom the benef‌it of the policy

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is to be

rendered by the insurer if and when it is time to do so. The principal

benef‌iciary in terms of an insurance policy is the policyholder, who in the

normal course of events would be the party instigating the insurance for his or

her own personal benef‌it. But there may be a number of possible reasons why

a policyholder would instead wish an outsider to benef‌it from his or her

policy. Atypical example would be a man insuring his life on the

understanding that the insurer will pay the proceeds of the policy to his wife

when he dies. This has the advantage that on acceptance of the nomination

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by his wife, the proceeds of the policy will not fall into his deceased estate,

with all the disadvantages and delays associated with the liquidation of a

deceased estate.

10

5

Reinecke, Vander Merwe, Van Niekerk & Havenga op cit note 1 in par 600.

6

Referred to in formal legal language as a solutionis causa adjectus.

7

Eg, funeral policies often provide that payment of the benef‌it is for convenience’s sake to be made

to any one of a number of specif‌ied family members.

8

The benef‌it payable to a nominated benef‌iciary in the situation discussed below is invariably a sum

of money.

9

See par 80 below.

10

So, too, a policyholder may nominate a benef‌iciary in order to fulf‌il a collateral contract. Or a

policyholder may agree with his f‌iancée that he will nominate her as his benef‌iciary in a life policy.This

amounts to an offer of donation. If his f‌iancée accepts this offer, she will be entitled to be so nominated.

Whether a court will order specif‌ic performance in such circumstances is another matter. Another

example would be where an insured agrees with his creditor to nominate him as benef‌iciary in order to

secure a debt owed to the creditor. These contracts in effectunderpin the nominations to be made. It is

also possible that an existing nomination may be used to perform a subsequent collateral contract like a

donation or a security transaction, eg, where an insured f‌irst nominates his f‌iancée as benef‌iciary and

then informs her of his intention to make a donation that she accepts.

(2009) 21 SA Merc LJ2

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6.This aim can be accomplished in one of three ways. The f‌irst is if the

third party, the wife, becomes a signatory and as such a formal party – an

insider, as it were – to the policy, with the right to receive the proceeds of the

policy.

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In that situation, the policy is a tripartite agreement between

the policyholder, the insurer and the benef‌iciary.

7.The second way is if the third party is identif‌ied in the policy itself as

the benef‌iciary to the benef‌its payable on the occurrence of the insured event

(eg, on the death of the life insured in the case of a whole life policy, or the

death of the life insured or the maturity of the policy (whichever date is

the earlier) in the case of an endowment).

12

In that situation, unlike the f‌irst

one, the benef‌iciary so identif‌ied is not a participating party to the contract

between the policyholder and the insured.

8.The third way, which is the most common situation, occurs when the

policyholder and the insurer agree in the policy that the policyholder has

the right to nominate, either there and then or later, the third party in whose

favour the benef‌it of the policy is eventually to be rendered by the insurer. So,

for instance, a man can take out a policy on his and his wife’s lives and

reserve the right to decide later which of his children is or are to receive the

policy proceeds on the death of the survivor.

9.There is no difference in quality or consequence, other than the timing

of the nomination, between these last two methods.

10.A nomination may be revocable or irrevocable, it may be for

ownership or for proceeds, and it may be limited or unlimited. All these

possibilities will be discussed below.

A Typical Example of a Beneficiary Nomination

11.A typical nomination clause reads as follows:

‘One or more benef‌iciaries may be appointed under this policy.

If the appointment is for proceeds

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at the death of the life insured and the appointment is

valid at the time of the death of the life insured, the proceeds will be paid to the benef‌iciary.

The benef‌iciary will have no rights to this policy prior to the death of the life insured or the

applicant, as the case may be, and until that happens

(a) the policy can be dealt with as if no benef‌iciary has been nominated;

(b) the applicant can revoke the nomination without the consent of the benef‌iciary by so

informing the head office of the insurer in writing.

Any appointment will automatically become invalid if the applicant should cede this policy

or any interest therein, either as a form of security or otherwise, or if the benef‌iciary should die

before obtaining any rights under this policy.’

12.The actual nomination by the policyholder may, at the insistence of

the insurer, read as follows:

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She may also undertake to pay the premiums, but this is not necessarily a legal obligation but

merely a precondition for a claim on the policy (see Reinecke, Vander Merwe, Van Niekerk & Havenga

op cit note 1 in pars 122, 597).

12

Idem in par 598.

13

On nominations for proceeds or ownership, see par 47 et seq below.

A SUGGESTED TEMPLATEFOR BENEFICIARY NOMINATIONS3

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