Life goes better when we understand the policies we sign up for
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Most of us agree to the terms and conditions of legally binding contracts without fully immersing ourselves.
You could be signing your life or money away to the organisation without realising it. Yes, that is a bit of an exaggeration, but it is not far from the truth. Many of us agree to web-based services that clearly state in the Ts and Cs that they will be selling your data; and what are the cookies we keep accepting?
The same goes with any financial policy: there are essential clauses that you need to be aware of, otherwise, without realising it, you will be fighting for a payout that you do not qualify for, all because you did not read the fine print. And not just reading it, but also understanding the text and understanding the impact that it will have on your life.
As you age, you may want to find a policy that will distribute your remaining funds upon your passing from this world. You may think it is as simple as writing down your beneficiaries' details and the percentage that each should receive. However, it is slightly more complicated than that. Firstly, and most importantly, find a policy that aligns with your needs. Not every policy may cover what you need it to cover and how you need it to be covered. Secondly, even though you may know and understand your policy, remember that your beneficiaries do not, and they probably will never know what you agreed on unless you inform them. Informing them will save them a great deal of stress when the time comes to access those funds. I can promise you they will not start plotting your demise.
Section 37C of the Pension Funds Act regulates the distribution and payment of lump-sum benefits payable on the death of a member of a pension fund, provident fund, pension and provident preservation fund and retirement annuity fund. Section 37C states that the board of trustees may take 12 months after the date of death to trace all your dependants before making payment to another nominee. We must understand who the Act considers as a dependant. According to attorneys Nel van der Merwe & Smalman, dependants are:
- Persons the deceased was legally liable to maintain, such as children, parents, and grandparents.
- Spouses, including permanent life partners, civil union partners, customary marriage, or religious union partners.
- Factual dependents, such as same-sex partners, stepchildren, foster-children, illegitimate children, adopted children, and unborn children.
If your partner, for instance, had a child out of wedlock that you might not have known about, that child is a dependant who must benefit from the fund. The board of trustees has 12 months to find the child and ascertain the child’s dependency on you. This means that, for the 12 months, they may freeze the funds. Everyone else must wait for the board of trustees to conclude all dependants. Your family might need the funds immediately after your passing, and unfortunately, they may have to wait. You are defeating the whole notion of taking care of your family when you're gone by not letting them know of all your dependants.
Furthermore, not only are there different payment periods, but there are also various payment methods. Beneficiaries may choose to receive funds in a lump sum or an annuity.
Considering the above, if you are not aware of a policy's wording and its impact, it can leave you confused when you attempt to implement it practically. Remember that an insurance or savings policy is a contract between you, the policyholder, and the insurer, and what you agreed upon will govern.
Just like with credit life insurance, the policy will not pay out unless you keep up with your premiums, so you cannot expect to receive from it when you do not play your part. You cannot try to bypass the system; you will be wasting your time.
Read policies so that you understand them from the beginning, to ensure the policy aligns with your intentions for those you want it to benefit. Most policy wording is loaded with legal and financial jargon – befriend a legal whizz and contact your financial adviser to go through it with you before you sign that you agree.
Remember that not understanding your policy is as good as not having one!
Nicolette Mashile is the co-host of the SABC1 talk show Daily Thetha, an actress on Generations and the founder of Financial Bunny, a financial literacy platform. She has now written a book, What’s Your Move? A Collection of Ordinary Financial Lessons.