CR274 Beneficiary nominations Joint life policy – spouses being joint policyholders
Joint life policy – spouses being joint policyholders – legal position when no beneficiary nominated and one of the policyholders dies.
1. In 1996 the complainant, Mr B, and his wife, Mrs B, took out a joint life policy to cover their bond, the sum assured being R110 000 in 1996. They were both proposers and both were lives assured under the policy. There was no beneficiary nomination, the policy simply stating that “The initial sum of R110 000 or the balance of the savings element, if greater, will be payable on the death of the first dying of the lives assured”. In 2005 the couple were divorced, in July 2006 the bond was settled, and in October 2006 Mrs B died.
2. Mrs B’s estate submitted a claim and the insurer paid the full proceeds to the estate. The complainant contended, however, that as premium payer and joint policyholder the proceeds of the policy should have been paid to him. He complained to the insurer and subsequently to our office.
3. The insurer then obtained an opinion from a re-insurer, which expressed the view that the proceeds were indeed payable to the complainant. The re-insurer reasoned that it was normal business practice for joint life policies not to have any beneficiary nominated, as the intention/purpose behind such policies is to pay out to a surviving spouse/partner.
4. Attorneys for the estate on the other hand argued that the policy fell into the wife’s estate in its entirety, on the grounds of a deeming provision in the Estate Duty Act for purposes of calculating estate duty payable. The attorneys also argued that as the parties were divorced by the date of the wife’s death, there was no longer any spouse/partner.
5. The insurer obtained an outside legal opinion. The view expressed therein was that the deeming provision in the Estate Duty Act does not deal with the question as to who is entitled to the proceeds of a joint life policy. The full proceeds of the policy would be subject to estate duty (as deemed property of the estate) but this would be payable by the survivor/beneficiary. The opinion was to the effect that the right to the proceeds of the policy vests in both of the policyholders. On the death of the first-dying, and in the absence of a named beneficiary, the proceeds become payable to the owners in equal shares.
6. Faced with all these legal opinions the insurer asked our office to rule on the question.
7. Our view was that the correct position was that as the complainant and his wife were joint owners of the policy, and in the absence of a named beneficiary or any other clause to the contrary, the proceeds on the death of the first-dying were payable to the owners in equal shares. We asked the insurer to check whether there might be something in the application, being part of the contract, expressing a different intention, in which case we would have to reconsider the position. The application could, however, not be traced.
8. Our office then made a provisional ruling that half of the proceeds must be paid to the complainant and the other half to the estate. The complainant objected, questioning on what basis our office sought to overrule the practice referred to by the insurer for joint life policies to pay the entire amount to the surviving spouse. It was explained that it did not depend on an insurer’s practice, but on the law, and that it was trite law that each joint owner is entitled to 50% of the proceeds. The ruling was therefore made final. The insurer recovered 50% of the proceeds from the estate, which it paid to the complainant.