Her parents went through a bitter divorce when she was very young and she was subsequently raised by her aunt.
When Yvonne grew up and bought her first life insurance policy, she named her aunt in the nomination form. Yvonne died from a rare illness a few years after that.
Yvonne had wanted her aunt to receive all the policy monies.
However, her aunt didn't fall into the category of nominees who would receive the policy monies beneficially, that is spouse, child or parent.
Hence, Yvonne's aunt would receive the money only as an executor who cannot keep any part of the money but must pass it on to the estate of the deceased, which will be distributed according to Yvonne's will or the prevailing laws of distribution, if there's no will.
If Yvonne did not write a will naming her aunt as the beneficiary, her aunt may end up not getting a single sen. Yvonne's estate will then be distributed according to the prevailing laws of distribution.
To ensure that your nominee receives your policy monies beneficially, it's crucial to know the law and act accordingly.
Creation of a Trust Policy
For a non-Muslim policyholder, a trust will be created in favour of his/her nominee if:
- the nominee is a spouse or child, or
- the nominee is a parent, provided that there's no living spouse or child at the time of nomination.
When such a trust policy is created, the nominees will receive the policy monies beneficially.
In Yvonne's case above, her nominee was neither a spouse, child nor parent and hence, no trust was created.
Her policy monies would form part of her estate, which is subject to her debts and will be distributed according the laws of distribution.
It was crucial that Yvonne created a will naming her aunt as the beneficiary to ensure that her aunt got what was intended, subject to her debts, if any.
It is also very important to note that trust policies do not apply to Muslims. The nominee of a Muslim policyholder receives the policy monies only as an executor and must distribute the monies according to Islamic laws.
The Difference between a Nominee and a Beneficiary
It is important to know the difference between a nominee and a beneficiary. A nominee is a person who is nominated in an insurance policy to receive or administer the policy monies upon the demise of the policyholder.
A beneficiary is a person who is entitled to receive for his/her own benefit, the policy monies under an insurance policy. A beneficiary does not merely act as an executor or trustee who holds the policy monies for others.
Appointing a Trustee
You can also appoint a trustee to receive the policy monies in a trust policy and distribute them to your nominees upon your demise.
the trustee must act in the best interest of the nominees, it's best to appoint someone you can trust.
The appointment of a trustee is particularly important when your nominee is under 18 years old.
Minors are considered legally incompetent to enter into a contract and, therefore, are not able to receive the policy monies directly.
You must update both your nomination and will to safeguard your loved ones' interests at all times.
* This article is brought to you by the Life Insurance Association of Malaysia
The policy in life insurance can be assigned freely for a legal consideration or love and affection.
Either the assignment shall be complete and effectual only on the execution of such endorsement on the policy itself or by a separate deed; Notice for this purpose must be given to the insurer who will acknowledge the assignment.
Once the assignment is completed, it cannot be revoked by the assignor because he ceases to be the owner of the policy unless reassignment is made by the assignee in favor; if the assignor.
An assignee may be the owner of the policy both on survival of the life assured, or 611 his death according to the terms of transfer.
The life policies are the only policies, which can he assigned whether the assignee has an insurable interest or not.
Life policies are frequently charged, assigned or otherwise dealt with for they are valuable securities because a fixed sum is certainly paid, in life policies excepting a few, say, pure endowment and temporary polices.
How Nomination Works in Life Insurance
The holder of a policy of life insurance on his own life either may at the time of affecting policy or at any subsequent time before the policy matures, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death.
A nomination can be cancelled before maturity, but unless notice is given of any such cancellation to the insurer, the insurer will not be liable for any “bona fide” payment to a nominee registered in the records.
When the policy matures, or if the nominee dies, the sum shall be paid to the policy-holder or his legal representatives.