MAKING SENSE OF INSURANCE NOMINATION - PART ONE
On 1st September 2009 a new Insurance Nomination law was introduced under the Insurance Act. This new law allows you, if you buy, or have already bought, a life policy or accident and health policy which pays benefits in the event of your death, to nominate who you wish to receive the proceeds from your policy.
It is not compulsory to make a nomination, but if you choose not to make one, the insurance company can pay up to $150,000 of the policy proceeds to anyone who qualifies as a “proper claimant” under the Insurance Act . Any remaining amount above $150,000 will be paid to the executor(s) named under a Grant of Probate or the administrator(s) named in Letters of Administration. It may, however, take some time for the executor(s) or administrator(s) to be confirmed by the court. Payment to proper claimants will be on a first-come-first-served basis, with no order of priority between proper claimants. This means the policy proceeds may end up being paid to more distantly-related proper claimants if they put in a claim before more closely-related ones.
If you have a will, the proceeds will be distributed according to the wishes that you have stated in your will. If you do not have one, the proceeds will be distributed according to the rules under the Intestate Succession Act. For more information about the Act, please refer to http://statutes.agc.gov.sg/.
To make a nomination, you must be both the policy owner and the life assured under the policy and at least 18 years old.
There are two types of nominations: Trust nomination and revocable nomination.
What is the difference between the two types of nominations?
If you make a trust nomination, you will lose all rights to the ownership of the policy. This means that all the proceeds of policies (living and death benefits) will belong to the nominee(s) you named, and you are still obliged to pay for the premiums. You are not allowed to make any changes to the policy or nominees without the consent of all nominees.
If you make a revocable nomination, you will continue to retain full rights and ownership over the policy. This means you can change or revoke a nomination at any time without needing the consent of the nominee(s). Death benefits will be paid to the nominees you named while living benefits, such as critical illness proceeds, maturity proceeds, will be paid to you.
Trust nomination
| Make a trust nomination only if you want to give away all rights and benefits under your policy to your nominee(s).
Mr. Tan and Mrs. Tan were married for more than 10 years. One day, Mr Tan suffered a stroke, and was hospitalised. After he recovered, he made a trust nomination naming his wife, Mrs. Tan, as the beneficiary, thinking that their marriage was stable. However, a few years later, they were divorced. Mrs. Tan refused to give consent for Mr Tan to revoke the trust nomination.
In this case, Mr. Tan could not change his nominee for his insurance policy as it was a trust nomination.
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How to make a trust nomination?
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If you want to make a trust nomination, your insurance company will give you a prescribed Trust Nomination Form, which is to be completed in the presence of two adults witnesses who must be at least 21 years old and who are not your nominee(s) or your nominees’ spouses.
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You may nominate only your spouse and/or children.
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All Nomination Forms are statutorily-prescribed instruments, meaning that the wording they contain cannot be amended and they have force of law. The Form must be returned to the insurance company concerned for the nomination to take effect.
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You will need to name a trustee(s) who is at least 18 years old. A nominee can also be a trustee. The trustee can be changed at any time, subject to prevailing law. You can name yourself as the trustee but if you do so you will not be able to:
1. Receive the policy proceeds or
2. Give consent for revocation of the nomination on behalf of the nominees.
Only another trustee other than you can do so. If you name a trustee other than yourself, the proceeds can be paid to this trustee. If you name yourself as the only trustee, the proceeds will be paid to the nominees.
How to revoke a trust nomination?
You can revoke a trust nomination at any point of time. However, you need to get the written consent of all nominees or of a trustee other than you, before you can:
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Revoke the trust nomination
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Make any changes to the policy
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Take a loan under the policy
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Surrender the policy.
Your insurance company will give you a prescribed Revocation of Trust Nomination Form to complete.
• For nominees below 18 years old, you must get the consent of their parent/legal guardian, who is not the policy owner. Once the trust nomination has been properly revoked, you can make a new trust nomination or revocable nomination over the policy.
• You must notify your insurance company and send your completed Revocation of Trust Nomination form to the company for the revocation to take effect.
What else do I need to know about trust nominations?
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In the event of the policy owner’s bankruptcy, the policy proceeds are generally protected from creditors.
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Before you can make any changes to the policy, for example, take a loan or do a policy surrender, you need to get the written consent of all nominees or of a trustee other than yourself.
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When a nominee dies before you the trust nomination can only be revoked with the consent of a trustee who is not the policy owner. Otherwise, the deceased nominee’s share of the policy proceeds will go to his estate
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For nominees under 18 years, the proceeds will be paid to the parent or legal guardian.
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Given the inflexibility of a trust nomination and the fact that even living benefits will be paid to the nominees, do consider making such a nomination only if you are prepared to give away the insurance policy proceeds completely to nominee(s).
Revocable Nomination
| Make a revocable nomination if you want to change your nominations in the future.
Mr. Lee has a life policy. He made a revocable nomination to his wife and only child. Two years later, his wife gave birth to another child.
By making a revocable nomination, Mr. Lee is able to revoke his old nomination and make a new one to include his second child, without having to obtain consent from his wife and child.
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How to make revocable nomination?
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If you want to make a revocable nomination, your insurance company will give you a Revocable Nomination Form which is to be completed in the presence of two adult witnesses who must be at least 21 years old and who are not your nominee(s) or your nominees’ spouses.
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You may nominate your spouse and/or children or any individual or any legal entity, be it an association or corporation.
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All Nomination Forms are statutorily-prescribed instruments, meaning that the wording they contain cannot be amended and they have force of law. The Form must be returned to the insurance company concerned for the nomination to take effect.
How to change a revocable nomination?
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You may revoke your existing nomination and make another new nomination at any time as you retain full rights and ownership over the policy.
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Your insurance company will give you a prescribed revocation of Revocable Nomination Form to complete.
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You must notify your insurance company and send your completed Revocation of Revocable Nomination Form to the company for the revocation to take effect.
Other knowledge I need to know for Revocable Nomination
• Proceeds of the policy are not protected from your creditors.
• For nominees below 18 years, the proceeds will be paid to the parent or legal guardian.
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When a nominee dies before the policy owner, and if there is/are:
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What happens to Revocable Nomination?
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Only one nominee
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Automatically revoked on death of nominee.
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More than one nominee
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Automatically revoked on the death of all nominees.
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one surviving nominee
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All the deceased nominees’ shares will be added to the surviving nominee’s share of death benefits.
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More than one surviving nominee
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Each deceased nominee’s share will be added to each surviving nominee’s share in proportion to each surviving nominee’s initial share. The amount is calculated based on the formula prescribed by the Insurance Nomination Law.
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Part 2
This article is produced by MoneySENSE and the Life Insurance Association, Singapore (LIA) under the MoneySENSE national financial educational programme.
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