Planning for the future is an activity that we all should engage in from time to time. We should not just plan for the immediate future, but we should keep in mind that some of the planning we do now can greatly affect the people we leave behind when we pass away. That is why proper estate planning is essential and having a life insurance policy is also very important to adequately provide for our loved ones.
The people involved with planning your estate is not necessarily the same people that are involved with providing you with a life insurance policy. So now the question is, when you pass away, who is responsible for your insurance policy – the executor of your estate, or the broker of your policy?
What are their roles?
Fully understanding who deals with your policy will be easier once we have clearly defined the roles of your executor and broker.
The executor of your deceased estate
The executor is responsible for administering your deceased estate once you have passed away. He/she is responsible for obtaining all the legal documents, like the death certificate and a list of all the assets and liabilities that are part of the estate. They are also responsible for reporting to the Master of the High Court through which they have been appointed. The executor has to make the death known to the deceased’s creditors and provide the opportunity to institute claims against the deceased estate. The executor is also responsible for closing the deceased’s bank accounts and opening new ones where the money of the estate will be kept. He/she has to determine how the liabilities are to be paid – is there enough money or must some of the assets be sold. The executor has to draft accounts for public inspection and lodge them with the Master of the High Court. If they are approved, the executor must pay the creditors and distribute the deceased estate accordingly.
Your broker will organise and execute financial transactions on your behalf. Your insurance broker specifically works for you in purchasing the best policy that will meet your needs. They use their technical, legal and industry knowledge and experience to advise you on what your options are whenever you have to renew a policy or whenever a claim is filed against a policy.
How does your insurance policy factor into your deceased estate?
Certain policies and funds do not form part of your deceased estate – these include your retirement fund, living annuity, and business interest protected by a business assurance. Your life insurance policy can also rank among the policies not included in your estate in certain circumstances. As these do not form part of your deceased estate, they are not administered by the executor.
Your life insurance policy is usually deemed an asset in your deceased estate and thus forms part of payable estate duty. However, if the policy is recoverable “by the surviving spouse or child of the deceased under a duly registered ante-nuptial or postnuptial contract” it is not included in estate duty and not part of the deceased estate. In such a situation, the named beneficiary (spouse or child) is responsible for filing a claim with their broker who will then set the process in motion to have the insurance policy be paid out to them. This payment has nothing to do with the deceased estate, and the executor, responsible for administering the estate, is not involved with it at all.
If your estate is the named beneficiary, however, and there are several reasons why one would want to name your estate as the beneficiary, the policy forms part of the deceased estate, it is part of the calculation for estate duty as well as the calculation determining the executor’s remuneration. In this situation, the executor has to file a claim for the insurance policy to pay out. It is still, however, the broker that will actually deal with the claim and see to its payment.
Ultimately, your broker will handle your life insurance policy and the payment thereof after your death once they have received a claim for it. The executor does not deal with the policy, though they might need to file the claim, depending on who the beneficiary is, and they might also need to deem the policy an asset in your estate when the estate duty or executor’s remuneration is calculated.
The relationship between your life insurance policy, estate planning, estate duties and executor’s remuneration can become a very complicated one, and it is best to have professionals assist you with your estate and life insurance planning. For the most part, though, the executor of your deceased estate will have little reason to deal with your life insurance policy as it is the named beneficiary of that policy that will deal directly with your broker (or insurance company).
AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.