Parents who list their minor children as sole beneficiaries of their funeral or life insurance policies could unknowingly create problems that delay funeral arrangements and deny their children access to funds when they need them most.
Nedbank insurance chief actuary Susan Hunt has urged parents, especially single parents, to avoid naming children under the age of 18 years as beneficiaries on such policies.
She said this move could result in the insurance payout being tied up in legal processes, leaving families without the money needed for funeral costs or daily support.
“By law, insurance companies are not allowed to pay the proceeds of a policy directly to a child who is under 18 years old (a minor).
“That money must instead be paid into a trust so that the child can receive it when they come of age.
“If no trust is set up and a minor child is the sole beneficiary, the funds will be paid into the Guardian’s Fund, which is a government fund administered by the Master of the High Court,” said Hunt.
She said the Guardian’s Fund holds the money until the child reaches legal majority, or is 18 years old.
Although it is intended to protect the interests of the child, she said this route can lead to delays and administrative complications.
This may become an issue when a single parent dies unexpectedly, having named only a minor child as their beneficiary.
“Without a trust in place, and with the child too young to claim the money, families are often left scrambling to cover funeral expenses,” she said.
Hunt advises parents to include an adult they trust, such as a spouse, parent, or sibling, as a co-beneficiary, particularly for funeral cover.
“Parents of a young child should avoid naming that child as the only beneficiary because that money will not be available for funeral expenses, which are an unplanned emergency.
“Instead, they should also name an adult who will be responsible for paying the funeral expenses from the payout,” said Hunt.
She explained that when it comes to life cover, the aim is often to leave a financial legacy for children.
In such cases, she recommends setting up a legal trust to ensure the money is safeguarded and will be available to the children when they come of age.
She said setting up a trust may require extra planning and paperwork but is one of the best ways to protect children from fraud, loss, or administrative delays.
“Setting up a trust is the most effective way to safeguard and leave financial support for minor children and minimise legal problems or fraudulent activity that could possibly deny them the very legacy you want to leave behind through life cover,” said Hunt.
