Death benefits explained

In South Africa, death benefits come from the following sources: 

Life insurance death benefits

When you take out life cover, you choose a cover amount and pay a premium, usually monthly. If you die while the policy is in force, the insurer pays that amount to the beneficiaries you've nominated. Because the policy belongs to you, it stays in place when you change jobs or start working for yourself.

Pension and provident fund death benefits

If you die before you retire, your pension or provident fund pays out a death benefit. At a minimum, this is the value of your savings in the fund at the time of death.

Employer group life insurance

Many employers offer group life cover for their staff, usually a multiple of your annual salary. Group cover normally ends when you leave the employer.

Funeral benefits

Funeral cover pays a smaller amount quickly, so that a family can cover the cost of a funeral without waiting for other claims to be finalised. Investec Life's Funeral Cover is an optional add-on to Life Cover and pays out within two business days of receiving all the required documents. You can read more about how life cover and funeral cover differ and how funeral claims work.

Who qualifies for a death benefit depends on where it comes from.

Life insurance and funeral policies

The insurer pays the beneficiaries you've nominated on the policy. You can nominate more than one person and decide what percentage each receives, and you can change your nomination at any time. If you haven't nominated anyone, the payout goes into your estate. It's then distributed according to your will, or the rules of intestate succession if you don't have one, and only once the estate has been wound up.

Pension, provident and other retirement funds

These benefits are governed by section 37C of the Pension Funds Act, which places the decision with the fund's trustees. They have a fiduciary duty to identify everyone who depended on you financially, which can include a spouse, children, parents or a partner you supported, and divide the benefit fairly among your dependants and nominees. Your nomination form guides the trustees but doesn't bind them, and your will doesn't apply to this money. The law gives trustees up to 12 months to trace dependants, so these payouts can take time.

Employer group life

An approved benefit follows the same section 37C process as the retirement fund it sits in. An unapproved benefit is paid according to the beneficiary nomination form you completed with your employer, in the same way as a policy of your own.

Most life insurance death benefits are paid as a lump sum. Some insurers also give beneficiaries the option of receiving the money in instalments. With Life Cover from Investec Life, the main beneficiary can receive up to R100,000 within two business days while the claim is being assessed, which helps with urgent expenses. For large payouts, beneficiaries can choose between a lump sum and instalments over time.

Retirement fund death benefits offer more options. A beneficiary can usually take the benefit as a lump sum, use it to buy an annuity that pays a regular income, or combine the two. Where the beneficiary is a minor, trustees may pay the benefit to the child's guardian or into a beneficiary fund that manages the money until the child is an adult.

Funeral benefits are paid as a single lump sum, usually to the policyholder or the main beneficiary.

It depends on the source.

•   Life insurance payouts aren't taxed in your beneficiaries' hands. If you paid the premiums on your own policy from after-tax income, they won't pay income tax or capital gains tax on the money.

•   Retirement fund lump sums are taxed according to SARS's retirement lump sum table. For the 2026/27 tax year, the first R550,000 is tax-free, although that amount is reduced by certain lump sums you received earlier in your life. The fund deducts the tax, as well as any outstanding tax liability owed to SARS, before it pays beneficiaries. If a beneficiary chooses an annuity instead, no tax is deducted upfront and the income is taxed at their own rate as they receive it.

•   Group life benefits are taxed according to the type of scheme. An approved benefit is taxed in the same way as a retirement fund lump sum. With an unapproved benefit, you're taxed on the premiums your employer pays for you as a fringe benefit, and the payout to your beneficiaries is tax-free.

•   Funeral benefits are paid tax-free.

•   Estate duty works differently. For estate duty purposes, the proceeds of a life policy on your life usually count as part of your dutiable estate, even when they're paid straight to a nominated beneficiary. There are exceptions, the most common being a payout to your surviving spouse, and estate duty only applies once the net value of an estate is above the threshold set by law. Lump sum death benefits from retirement funds are generally excluded.

•   Tax rules change and apply differently to different people, so check your own position with a financial adviser or tax practitioner.

Contact the insurer, the retirement fund or the employer's HR department as soon as you can. You'll usually need a completed claim form, a certified copy of the death certificate, certified copies of the deceased's and the beneficiary's identity documents, and the beneficiary's bank details. The insurer may ask for medical records or a police report, depending on the cause of death. For a policy with no nominated beneficiary, the executor of the estate makes the claim.

Funeral benefits are the quickest and are often paid within days. A life insurance payout to a nominated beneficiary is paid directly to that person once the claim is approved, without waiting for the estate. Retirement fund benefits can take up to 12 months while trustees trace dependants. Anything paid into an estate is only distributed once the estate has been wound up, which often takes many months.

If the only beneficiary on your life policy dies before you and you don't nominate someone else, the payout goes into your estate. If you nominated several people, what happens to that person's share depends on the terms of your policy. Review your nominations after any major life event, such as a marriage, a divorce, a birth or a death in the family. With a retirement fund, the trustees would look at your remaining dependants and nominees at the time of your death.

Yes, although a child under 18 can't receive the money directly. It would be paid to the child's guardian on their behalf, or into the Guardian's Fund, which is administered by the Master of the High Court. Many parents set up a testamentary trust in their will and nominate the trust as the beneficiary of their policy, so that trustees they've chosen manage the money until the child is older.

When a life policy pays a nominated beneficiary, the money goes directly to that person and doesn't form part of the estate that creditors can claim against. The exception is a policy you've ceded to a lender as security for a loan, where the lender is paid first. If the payout goes into your estate, your debts are settled before anything is distributed to your heirs. Retirement fund death benefits also fall outside your estate.