Life insurance is all about two parties – The insurer and the insured.
But often there’s a third party involved too, which brings us back to financial planning!
Let’s take a look at each of the three parties in turn starting with…
The Insurer
Insurance companies are in the business of buying risk, whether it be the risk of having your car stolen or the risk of losing your life!
Companies looking to buy your car risk are known as short term insurers while companies looking to buy the risk of you dying are known as long term insurers.
Short term insurers need to be registered in terms of the Short Term Insurance Act 53 of 1998 while long term insurers need to be registered in terms of the Long Term Insurance Act 52 of 1998.
Sidenote:
If this all sounds pretty obvious to you, then you might be surprised to know that many people don’t know the difference between a broker, an administrator, and an insurance company…
“So who’re you insured with?”
“Ag, I’m with so-and-so from Alberton!”
“That sounds like a brokerage. Who’s your insurance company?”
Then, of course, there’s…
The Insured
Now most of us can relate to this one, but be careful.
The insured can be the person whose life is being insured, as well as the person taking out the insurance contract, but…this can also be two separate people.
The policyholder is entitled to the policy benefits with life insurance while the insured is the person whose life is being covered in terms of the life insurance contract.
If we’re talking of two separate people here, then the second party to an insurance contract is the policyholder – not the insured!
So who’s…
The Third Party
A third party can be involved through:
- Cession
- Alteri Stipulari Nemo Potest– a stipulation in favour of a third party such as a beneficiary nomination
- A Statutory provision of law such as the Insolvency Act which forces an insurer to pay over an amount which is owed to the party seeking compensation (There are limitations as to how much may be paid out though!).
So there you have the reason why an heir in terms of your Last Will and Testament cannot override the beneficiary nomination on your life insurance policy.
A life insurance contract is exactly that – a life insurance contract – and therefore falls under the law of contract!
Related posts:
- Financial Planning | What Forms The Basis Of Valid Insurance Contracts
- Financial Planning | Its All About Keeping The Faith!
- Financial Planning | What Is Non-Indemnity Insurance?
- Financial Planning | What Is Indemnity Insurance Anyway?
- Financial Planning | Are You Guilty Of Misrepresentation?
Article by Lawrence
Someone, who as he gets older, finds he has more questions than answers
Lawrence has written 150 awesome articles for us at Insurance Fundi
