More flexibility with new insurance law

More flexibility with new insurance law

Policyholders can now change nominees, but law not retrospective. -ST Source: Thu, Sep 10, 2009 The Straits Times

By Lorna Tan, Senior Correspondent

INSURANCE policyholders can name beneficiaries and change them when the need arises, thanks to the introduction of a new nomination regime.

The long-awaited Insurance Nomination Law provides policyholders of life, accident and health policies with more flexibility and control over how to distribute policy proceeds.

The new law came into effect on Sept 1 and is seen as a vast improvement on the arrangement it replaces, which did not allow policyholders to change beneficiaries even after a divorce.

This meant that if a policyholder named his spouse or children as policy beneficiaries, he effectively created a statutory trust even if he did not want to.

Policyholders were prevented from changing their beneficiaries, or cashing in their policies without the consent of beneficiaries.

Many policyholders learnt of this only during divorce proceedings when they discovered that their former spouses still had a claim on their policies, or when an insured person's death sparked a bitter family dispute.

Some did not realise that if they named other parties as beneficiaries, such as grandparents, siblings, aunts and friends, they had no legal claim to policy proceeds.

The controversies surrounding such trusts prompted the insurance industry to do away with nominating beneficiaries in life policies in 2002.

The exception is NTUC Income because its policy proceeds are paid to nominees under a different law - the Cooperative Societies Act - allowing a cooperative member to make a nomination, which can include spouse, children, relatives and friends.

Under the Insurance Nomination Law, customers have two choices - to either make a trust nomination, or a revocable nomination.

With a trust nomination, the policyholder relinquishes all rights to the policy. This means that while he is still obliged to pay premiums, all policy benefits - living and death - belong to the nominees. An advantage is that policy proceeds are protected from creditors in the event of bankruptcy.

The policyholder can regain his rights to own the policy benefits only with the consent of all nominees. And only the spouse or a child of the policyholder is eligible to become a nominee.

With a revocable nomination, the policyholder continues to retain full ownership over the policy. He retains the right to change, add or remove nominees at any time without the consent of nominees.

The policyholder will receive living benefits and only death benefits will be paid to the nominees.

Unfortunately, the new law does not apply retrospectively to existing policies with previous nominations, but existing policies with no previous nominations are eligible.

Although the new framework applies to personal accident plans, general or non-life insurers who sell such cover would not be keen to offer their customers the option to nominate.

The General Insurance Association said that this was due to the fact that such policies are renewable either annually or on a monthly basis.

'Hence any nomination by a policyholder will be valid for the period of insurance only, which can be as short as one month,' it added.

Nevertheless, the new law has been welcomed by many.

Mr Darren Thomson, president of the Life Insurance Association (LIA), said: 'For estate planning, the new framework provides all-important clarity and hence peace of mind.

'It gives policyholders legal options in naming their beneficiaries, and a choice of control over the policy - whether they wish to relinquish or retain their rights during their lifetime.'

LIA added that the nomination process is straightforward with forms that are easy to complete.

To help consumers, a guide is available on its website www.lia.org.sg