insuranceFile

A new law governing insurance nominations came into effect on 1 Sep 09. This law clarifies exisiting uncertainties about nominations and trusts.  New policy holders and existing policies without nominations (not applied retrospectively) can now name beneficiaries and change them when the need arises. What should a Financial Planner know about this law?

Before this law was passed, only Co-operatives like NTUC can nominate and change beneficiaries to be recognised as lawful beneficiaries. All other insurance policy nominations are not recognised. Policy holders had to declare a Section 73 statutory trust which renders the nomination unalterable even if there is a divorce. Policy holders also have to get consent from beneficiaries, whould they wish to loan, cash out or withdraw an amount from the policy even if they are the rightful owner.

As a result of such confusion, insurance companies did away with nominations since 2002.

Under the Insurance Nomination Law, customers have the choice to make a trust nomination or a revocable nomination. A simple table explaining the differences is attached below:

table

Trust nominations have creditor protection and accrue to a separate estate (minimises estate duties currently zero in Singapore) .

Existing policies without prior nominations or new policies are eligible for this nomination.

So should policy holders go out there and start nominating their beneficiaries?

Without nomination, the proceeds from life insurance upon death will be paid to the estate, thereafter distributed by will or under intestacy rules.  This by itself can be a better arrangement, as you do not have to remember who you nominated for which policy and how much. Example if you have another child, the new child will not have been in the previous trust policy. And you’ll have to change all the nominations if you wish to change the proportions.

This can lead to unnecessary headaches when there are changes to family issues: deceased spouses/children, new child, unfilial children etc.

Just have a valid will that spells out the intention for the distribution of their assets.

Having said that, there are some situations this new law will be useful.

Example:

  1. A grandparent buys a policy for the benefit of his grandchild only. A trust will safeguard the monies from creditors, and state clearly the intention of the policy owner that he intends this as a gift for the beneficiary. A revocable nomination can work as well, but will not have the benefit of creditor protection
  2. The policy owner has intention to nominate non-immediate family members, firms or associations to policies they implement. (will be revocable but recognised as valid)
  3. Any other policies implemented for a specific purpose for specific beneficiaries. In which case, they can use a trust nomination or revocable nomination.

As Financial Advisors, we’ll need to be aware of the two nominations possible and the impacts on control over the policy, creditor protection, estate protection and changing of nominations, so that we advise clients appropriately.



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