What is the difference between a beneficiary nomination and a will?
A will is a legal document that dictates how the assets inside a deceased estate are distributed. However, not everything a person owns falls into their estate when they die.
A beneficiary nomination on a life insurance policy or retirement fund acts as a separate, parallel instruction. In most cases, these nominations legally override the will, allowing the money to bypass the estate process entirely and pay out directly to the chosen individuals.
The speed of payout
When a person passes away, their bank accounts are frozen and their assets are locked inside a deceased estate. The executor must wind up the estate, pay debts, and file taxes before distributing anything to the heirs named in the will. This legal process often takes a year or longer.
If a life insurance policy has a specific beneficiary nomination, the money never enters the estate. It operates as a direct contract between the insurance company and the beneficiary. The insurer pays the cash directly into the beneficiary's bank account, usually within a few weeks, providing immediate financial relief while the rest of the estate is tied up.
Avoiding executor fees
An executor is legally entitled to charge a maximum fee of 3.5% (plus VAT) on the gross value of all the assets they administer in the estate.
Because a life policy with a nominated beneficiary pays out outside the estate, the executor does not handle the money. Consequently, the executor is not permitted to charge their 3.5% fee on that payout.
If the policyholder leaves the beneficiary section blank, or actively names "my estate" as the beneficiary, the life policy pays directly into the estate's bank account. The executor then claims their fee on the full amount before the remainder is passed to the heirs according to the will.
The estate duty catch
While a nominated life policy bypasses executor fees, it does not bypass the South African Revenue Service (SARS).
Under South African tax law, a domestic life policy is classified as deemed property. Even if the money pays out directly to a beneficiary, SARS still adds the value of that payout to the total value of the estate for the purpose of calculating estate duty. If the policy triggers a tax bill, the executor uses an apportionment process to ask the beneficiary to pay their share of the tax.
Retirement funds: the Section 37C exception
Retirement funds — such as pension, provident, and retirement annuity funds — follow completely different rules from life insurance policies. They are governed by Section 37C of the Pension Funds Act.
When a person dies, their retirement fund does not form part of their estate, and it cannot be distributed by their will. However, the beneficiary nomination on the fund is also not a legally binding contract; it is merely a guide.
The law places a strict duty on the fund's trustees to physically trace all of the deceased's financial dependants. The trustees have the ultimate legal power to divide the money among those dependants as they see fit to ensure no one is left destitute, even if the deceased nominated someone else on the form.
When a will and a policy contradict
If a person's will states that their entire life insurance payout must go to their son, but the official beneficiary nomination form at the insurance company still lists their ex-spouse, the insurance company will pay the ex-spouse.
A life insurance payout is governed by the contract signed with the insurer. A clause in a will cannot cancel or override a valid beneficiary nomination held by the insurance company.
Terms used on this page
- executor
- The person or institution appointed to wind up a deceased estate — collecting the assets, paying the debts and costs, and distributing what remains to the heirs.
- beneficiary nomination form
- The form on which you record who you would like to receive a death benefit. On a retirement fund it guides the trustees; on a life policy it usually instructs the insurer directly.
- deemed property
- Assets that do not physically belong to a person at the time of their death, but are legally treated as part of their estate for tax purposes.
- estate duty
- A tax levied on the total value of a deceased person's estate, payable before the remaining assets are distributed to heirs.
- apportionment
- The legal process of dividing a tax bill proportionally among the people who received the assets that caused the tax.
Sources
Reviewed July 2026