16 November 2011

Insurance nominee or beneficiary?

As a general rule, all your assets will be frozen when you die. With or without a will, your assets will be used to pay off creditors' claim and outstanding taxes before the leftover is being distributed to your family.

I guess by now everyone knows that only insurance proceeds and EPF balance are the 2 types of funds which will be paid directly to your nominee or beneficiary upon one's demise. These are said to be protected from creditors' claim even though a person is declared bankrupt prior to his death.

One thing you notice is that the terms beneficiary and nominee are always being used interchangeably.

In the context of EPF, they are the same. Your nominee is your beneficiary.

In life and personal accident insurance context, however, they are NOT. The following info are quoted and simplified from Section 166 of the Insurance Act.

Nominee is the person who will receive the money should you die. However, whether the nominee can use the insurance proceeds very much depends on your relationship with the nominee. 

If you are not married, your parents is your legal beneficiary. If your nominee is your parents, then your parents can use the death claim proceeds. If your nominee is not your parents, then he or she can only act as an executor who temporarily manages the money instead having the legal right to use the money.

If you are married, your spouse and your children (in that order) are your legal beneficiaries. If you nominate them in your policy, then they can use the death claim proceeds. If your nominee is not your spouse or children, then he or she can only act as an executor who manages the money (settling debt, taxes, etc) before distributing it to your legal beneficiaries.

In the event of non-nomination, the distribution of insurance proceeds will be according your your will or according to the Distribution Act if you die without leaving a will.

A good insurance agent will always make sure you name your nominee. Contact  your agent today if you did not fill in the nomination section previously, especially if you are married with dependants. This is important so that your spouse/children/parents will receive the money directly and thus avoiding that sum of money from going into your estate (subject to creditors' claim).

Bear in mind that the above is only applicable for non-Muslim.

For Muslim, these rules apply:

The nominee irrespective of relationship can only receive the policy moneys as an executor

The policy moneys must be distributed according to Islamic Faraid laws.

Muslims do not buy conventional insurance contracts because of the elements of uncertainty, gambling and interest. A special insurance arrangement known as Takaful is used in compliance with Syariah principles. 


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