Now that you have purchased a life insurance policy, what’s next?
You would probably recall that when you went through your policy details, there was a death benefit listed among the documents.
Who would get the payout should you pass away when your policy is active? As morbid as it can be, life is unpredictable and it is important that we make insurance nominations where possible.
In this guide, we will share more about what an insurance nomination entails, the different types of nominations, and how to go about making one.
What is an insurance nomination? Why do I have to do it?
The Insurance Nomination Law was introduced on 1 September 2009 to allow insurance policyholders to easily, clearly, and affordably nominate beneficiaries – people or organisations who would receive your insurance payouts.
Policyholders can specify who and what percentage of the payouts will be in this legal and binding document. This helps to ensure their nominated beneficiaries receive the benefits accordingly following their demise.
Cash-funded insurance policies with death benefits, such as life insurance policies, personal accident plans, and health insurance are eligible for insurance nominations.
While it is not compulsory to do a nomination, it’s a cost-effective fuss-free way to distribute the payouts in the event of your death. Making an insurance nomination clears up any possible disputes so that your loved ones receive the intended benefits they are entitled to.
Furthermore, insurance nominations are free. To make an insurance nomination, you must be the policyholder, at least 18 years of age, and the one insured under the policy.
What happens if I don’t have an insurance nomination?
It is not mandatory to make an insurance nomination.
In the unfortunate event of death with no prior nomination, the benefits will be given to someone deemed a proper claimant, which could be your spouse, child, or next-of-kin.
If you have a will left behind that was made known to your insurer, the policy benefits will be allocated according to your will. In the absence of a will, your estate will be distributed according to intestacy laws, which means that nominees do not have to be nominated.
Types of nominations
There are two types of nominations — Trust (Irrevocable) Nomination, and Revocable Nomination.
When the policy owner makes an irrevocable nomination, the policy owner surrenders all rights to the policy’s ownership. Written consent from the beneficiaries is required to make any changes to the policy. An irrevocable nomination cannot be voided by a will, and can only be made for your spouse or children.
A big reason people choose irrevocable nominations is to protect their policies against creditors and debtors in the event of bankruptcy.
A revocable nomination, on the other hand, can be revoked at any time without the consent of your nominee(s). The policy owner is free to change, add or remove nominees without requiring their consent. You can nominate anyone in a revocable nomination.
|Irrevocable nomination||Revocable nomination|
|Nominees||Limited to only spouse and children||Can be anyone|
|Policy owner rights||All rights relinquished, with written consent required to revise policy||All rights remain, changes can be made any time without anyone’s consent|
|Proceeds of the policy belong to||Living and death benefits go to nominees||Living benefits belong to you, while death benefits go to your nominees|
|If nominee passes on first||Proceeds go to nominee’s estate||Equally distributed to other nominees|
Read more: 3 Simple Steps To Nominate Your CPF Online
Irrevocable (Trust) Nominations
Before making an irrevocable nomination, which is also known as a trust nomination, you must first carefully consider what you are about to do. With a trust nomination, the policy owner will lose all rights to the ownership of the policy, while continuing to pay the policy’s premium.
The only beneficiaries allowed in a trust nomination are your spouse and children. Both the living and death benefits will belong to your nominees, and this includes any medical reimbursement that you might receive while alive.
Essentially, an irrevocable nomination allows you, the policy owner, to create a trust for your beneficiaries. In the event of bankruptcy, monies from policy payouts are protected from creditors. The policy payouts will be properly administered and distributed only to your beneficiaries by an appointed trustee.
Once a trust nomination is made, written consent from your trustee or beneficiaries is needed before you can make any changes to the policy. This includes taking policy loans, making withdrawals, fund switches, policy surrender, and more.
Also, if you decide to change or revoke your trust nomination, be it due to changes in family circumstances or you have had a change of mind, written consent is also required from your trustee or beneficiaries.
How do I make a trust nomination?
Other than cash-funded insurance policies, Minimum Sum Plus Scheme (cash-funded) insurance policies are the only type of CPF-scheme policy that allow trust nomination.
If you decide to make a Trust Nomination, you must appoint two witnesses aged 21 and above. Your witnesses cannot be any of your nominees or the spouse of your nominees.
You must state the percentage of policy proceeds each nominee will receive, and the total proceeds must add up to 100 per cent.
Check with your insurance company on their Trust Nomination form and fill it up accurately. Submit the form and the insurance company will get back to you regarding your request.
Appointing a trustee
A trustee is a person who holds and administers assets or property for the benefit of a third party. They must be at least 18 years old and can be a nominee. The trustee can be changed at any time, subject to prevailing laws.
You can also appoint more than two trustees for a trust nomination. The policyholder can also be a trustee but cannot receive any policy proceeds or give consent to revoke the nomination on behalf of the nominees.
What happens after I pass on?
If you have successfully made a Trust Nomination with your insurer, your policy benefits will be allocated to your nominees according to your wishes.
For nominees below 18 years of age, the benefits will be entrusted to their parents or legal guardian.
What happens if my nominee passes away before me?
If you have more than one beneficiary and one of them passed on before you, their portion of the payouts will not be distributed to the other beneficiaries you have nominated.
Instead, the payouts will be allocated and distributed to their estate, either according to their will or the Intestate Succession Act.
Can I revoke a trust nomination?
In order to revoke a trust nomination, you will need the written consent of your trustee or each one of your nominees. If you have any nominees below the age of 18, their parent or legal guardian, who is not the policyholder, will need to give their written consent.
If your nominee passes on before you, you will still require the consent of a trustee to revoke your nomination. Otherwise, the benefits of your policy will still be distributed to the deceased nominee’s estate.
To complete the revocation process, you will have to submit the Revocation of Trust Nomination Form. Once this is successful, you can either make a new trust nomination using the Trust Nomination Form or make a revocable nomination instead.
A revocable nomination allows the policyholder to retain all rights and ownership, allowing you to amend or revoke a nomination without the consent of your nominee/s or trustee/s.
Unlike a trust nomination, nominees of a revocable nomination only receive the death benefit payouts. All living benefits are still paid to the policyholder.
To make a revocable nomination, you must be at least 18 years old. Anyone can be named in a revocable nomination — this is not restricted to just your spouse and children.
How do I make a revocable nomination?
Complete and submit the Revocable Nomination Form in order to make a revocable nomination. You can easily receive this form from the insurance company or from the financial advisor you purchased the policy through.
If there is more than one nominee, you will have to state the percentage of the policy proceeds each nominee will receive, and the total proceeds must add up to 100 per cent.
Once your insurer is informed of your revocable nomination, your death benefits will be made to your nominees in the event of your demise. For a revocable nomination, no trustee is required.
Can I revoke a revocable nomination?
To revoke a revocable nomination, you will have to complete the Revocation of Revocable Nomination Form, with two witnesses aged 21 years and above.
You will be able to revoke the nomination as the policyholder, and you do not require the consent of your nominees. After you have successfully revoked the revocable nomination, you can either make a new revocable nomination or consider making a trust nomination.
What happens if my revocable nomination’s nominee passes on before I do?
If you have more than one nominee, the deceased nominee’s proceeds will be distributed equally to the surviving nominees if one of them passes on before you. However, if there are no other surviving nominees, this nomination will be considered cancelled.
In this case, you can either make a new revocable nomination or a trust nomination.
Given its inflexibility for changes, an irrevocable nomination should only be made when you are absolutely sure about your decision and nominees. A revocable nomination is preferred for its flexibility, but it does not protect your beneficiaries from creditors should you have debts when you passed on.
Insurance nominations are free and you can easily get them done via the forms from your insurance company. If you have yet to make an insurance nomination, it is time for you to think about it and contact your financial advisor if you want to do so.
If you wish to know more about insurance nominations, feel free to contact the Planner Bee team at email@example.com.