Note the some of the information below may be outdated as New Nomination of Beneficiaries Framework has been effective from September 1, 2009.
Question: I UNDERSTAND that only two types of nominations for beneficiaries are valid for life insurance policies.
The first type: Nominations made for NTUC Income policies as they are governed by the Cooperative Societies Act, which allows its policyholders to nominate beneficiaries.
The second type: Nominations made in favour of an insured’s spouse and/or children.
Under Section 73 of the Conveyancing and Law of Property Act, when a person purchases a life insurance policy and nominates the spouse or children as the beneficiaries of the policy, a trust is automatically created in their favour.
I have 10 life insurance policies bought mainly in the 1990s. None were from NTUC Income.
I have named several members of my family as beneficiaries of some of the policies.
Take for example a policy for which my parents, wife and sister are the nominated beneficiaries.
Must all the nominees be wife and/or children before a Section 73 trust is created?
If the nominees are my parents, sister and wife, does it mean:
- All the nominations are 100 per cent invalid; or
- A Section 73 trust is created for my wife and only a portion of the insurance proceeds will go to her; or
- A Section 73 trust is created for my wife for 100 per cent of the proceeds?
What if my father has died? Does it just mean his share will go to the remaining nominees?
If I prepare a will now, can I override all the nominations I have made for the insurance policies?
Answer: In order for a policy to be deemed a trust policy under Section 73 of the Conveyancing and Law of Property Act, all the beneficiaries must be a spouse and/or children.
Any payout from these policies are for the benefit of the beneficiaries.
Thus, even if the insured were to suffer from total and permanent disability, the insurance payout is legally for the benefit of the beneficiaries, not the insured.
Similarly, if the insured were to surrender the policy, the payout will be in his name – unless he has appointed a trustee – but legally it is for the benefit of the beneficiaries.
If the beneficiaries of some of your policies are your parents, sister and wife, your nominations are valid.
However, the policies would not come under Section 73.
If your father has died, his share of your policy proceeds will go to his estate.
If you write a will to override all your policy beneficiary arrangements, it will not apply to NTUC Income policies where a nomination has been made, or to policies deemed to be Section 73 policies.
To avoid complications, and to expedite the payment of claim proceeds, you should speak to your insurer and, wherever possible, make the necessary changes to all your policies to reflect your wishes.
Leong Sze Hian
Society of Financial Service Professionals
Advice provided in this column is not meant as a substitute for comprehensive professional advice.
Source: Straits Times