Sunday, April 26, 2009

Insurance Nominations

Parliament passed the Insurance Act (Amendment) Bill on 19 January 09. It contains a framework for nomination of beneficiaries in respect to insurance policy proceeds. Part of the Act came into operation on 1st March 09.

Prior to the amendment, the Insurance Act did not contain provisions for the nomination of beneficiaries. The new section 49L and 49M will introduce a new framework for nomination of beneficiaries in respect of Life, Accident or Health Insurance with Death Benefits. This Act has yet to come into force, but I believe changes should be on the way anytime soon.

Existing Framework
* When a policyowner names his spouse and/or children as beneficiaries of an insurance policy effected on his own life, section 73 of the Conveyancing and Law of Property Act will automatically create a statutory trust in favour of the beneficiaries.
* The creation of such a trust implies that the policy owner will irrevocably lose all rights and control over the insurance policy concerned, including payouts made when he is alive.
* For the trust to be effective, the policy must be bought after marriage and nomination made at point of inception.

New Framework

* Insurance policy owners will be able to choose whether or not to make nomiation. They can choose between a revocable or irrevocable (trust) nomiation.
* The new nomination framework shall not apply retrospectively. What this means is that insurance policies with existing nominations will continue to be subject to the laws in force at the time the nomination was made.

Revocable Nominations:
* The Policy owner can change his nomination at any time and be paid as per his nomination in event of death.
* Insurance policies paid for with CPF monies will be eligible only for revocable nominations.

Irrevocable (Trust) Nominations:
* An irrevocable nomination will create a statutory trust in favour of the Beneficiaries. This feature is similar to the Section 73 of the CLPA.
* Once such nomination was made, the Policy owner lost all rights and control over the policy

NTUC Income Policies
* NTUC Income is the only Insurance Cooperative in Singapore. They have provision under Section 45 of the Cooperatives' Societies Act that allows their policyholders to make a nomination.
* However, do note that the rightful beneficiaries still have the rights to contest their nomination in court. Just that we probably have not heard of such contest before.

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