Name your own Beneficiaries

Source: Straits Times Sep 7, 2009

Policy rules eased

By Lorna Tan

POLICYHOLDERS are now allowed to name beneficiaries and change them when the need arises under a new nomination framework which kicked in on Sep 1. The long-awaited-for Insurance Nomination law provides policyholders of life, accident and health policies, more flexibility and control over how they wish to distribute the policy proceeds. Customers have two choices, to either make a trust nomination or a revocable nomination. This is a vast improvement from previously as the law did not allow a policyholder to change his beneficiary, even after a divorce. Back then, if you have named your spouse or children as policy beneficiaries, you have effectively created a statutory trust. This is even if you did not explicitly want to. It means that you cannot change your beneficiaries, or cash in your policy without the consent of the beneficiaries. Many policyholders learn of this only during divorce proceedings when, to their horror, they find that their ex-spouses may still have claims on their policies. Or it comes to light only when the insured person dies, often sparking bitter family disputes. Many policyholders also do not realise that if they name other parties such as grandparents, siblings, aunts and friends as beneficiaries, these people have no legal claim to policy proceeds. The controversies surrounding such trusts prompted the insurance industry to do away with nominating beneficiaries in life policies since 2002. The exception is NTUC Income because its policy proceeds are paid to nominees under a different law - the Cooperative Societies Act - and this Act allows a cooperative member to make a nomination, which can include spouse, kids, relatives and friends. This is how the new framework operates. With a trust nomination, the policyholder relinquishes all rights to the policy. This means that while he is still obliged to pay the premiums, all policy benefits - living and death - belong to the nominees. An advantage of this is that the policy proceeds are protected from creditors in the event of bankruptcy. He can only regain his rights to own the policy benefits with the consent of all nominees. Only the spouse, or a child, of the policyholder is eligible to become a nominee under a trust nomination. With a revocable nomination, the policyholder continue to retain full ownership over the policy. He also retains the ability to change, add or remove nominees at any time without the consent of the nominees. The policyholder will receive living benefits and only death benefits will be paid to the nominees.