After getting the right insurance cover, you generally feel quite good about yourself.
Taking charge of your financial future? Check.
Demonstrated yourself to be a responsible adult? Check.
An intangible peace of mind once the paperwork in complete? Check.
Buying (the right) insurance is a great thing to do. We congratulate you on doing so. But there is on often overlooked portion of the process that most people fail to address, and that is to make a nomination.
What is a nomination?
A nomination, in the context of insurance, is to name the person(s) or entities that will be given the sum assured amounts in the event of your passing.
The person, people, or entities that you nominate are called beneficiaries.
Who can you nominate?
Basically anyone you choose. Family members are a common choice, as are charities and related associations. If there is more than one person or entity that you nominate, then it is possible to split up the proceeds according to a percentage that you specify. (e.g. 50% to Jane, 20% to John, and 30% to SPCA)
If you are at a loss as to who to nominate, we are always ready and willing to shoulder this heavy responsibility. Just reach out to us here, don’t be shy.
What happens if you do not make a nomination?
According to this news article, approximately 2% of Life Insurance policies have named beneficiaries. A whopping 98% of us don’t bother to fill in that piece of paper.
Two things then can happen because of that.
1. It takes a longer time for your family to receive the insurance proceeds
Without a named beneficiary, the insurer is in the dark as to who is supposed to receive the money. In such cases, the insurer must receive instructions from the court (aka the Law) before they can disburse the claims amount.
The instructions from the court comes in 2 forms:
The Grant of Probate: An official letter from the court issued if the person left behind a valid will
The Grant of Letters of Administration: An official letter from the court issued if the person did not leave behind a valid will.
In such cases, the relevant Grants could take some time to be issued, anywhere from 6 months to 2 years depending on the complexity.
The family would be left high and dry before that, which could add on to the stress levels especially if they need the money for daily expenses.
The insurer could, at its discretion, release up to $150,000 of the claims amount to a “Proper Claimant”. This could be the spouse, parent, sibling, children, nephew or niece of the deceased.
The Proper Claimant is supposed to disburse the money according to the last wishes of the deceased – though there is no way of ensuring that actually happens. (Hence the danger)
2. There could be a possible tussle especially if the will was not properly written
Even though the law allows the Insurer to pay up to 150,000 first to the Proper Claimant (which is meant to prevent any liquidity issues for the family), but in reality there could be some roadblocks such as:
Inability of the Insurer to determine a Proper Claimant
Dispute among family members
No documentary evidence available to show blood relations to the deceased.
In such cases, the Insurer has the right not to pay up the 150,000 first, but wait for court instructions before proceeding.
Then the pay out depends on how the will was structured, who is contesting it, and it could be a long drawn, messy affair – which leads to protracted legal costs that eat into the claims proceeds.
What happens when you DO make a nomination?
The insurer identifies the beneficiaries and pays out the cheque, sometimes within the week. No instruction from the court is necessary, and the full amount reaches the intended parties.
Quite preferable indeed.
What are the types of nomination available?
Two types, as follows:
A nomination that can be changed as and when you choose. Majority of the nominations are of this category, for obvious reasons of control.
A nomination that is, once made, not subject to change from you, except with the full consent of all the nominees. Despite the obvious lack of flexibility, people do choose this option to protect their insurance proceeds from potential creditors.
What should you do next?
If you haven’t done so already, do make a nomination for your existing (and future) policies! It is a simple matter of contacting your agent or financial planner – and finding out the options available and which ones suit you the best.
You want to leave behind a legacy, not a legal mess.
This article required a substantial amount of delving into the Insurance Act, and we are grateful for the assistance of Jiale, who contributed as a subject matter expert. He covered this topic of nomination as part of his MoneyMap series, meant to educate about financial planning as a whole.
You can catch the episode here:
For more than half a decade, Jiale’s passion has been guiding families and individuals with plainspoken, no-nonsense financial advice, and Investment is his forte. Presently working with over 300 families across SEA, he serves them through personal consultations, client seminars and insurance videos.
Jiale presently holds the highest financial advisory title of Senior Executive Financial Planner.
He also declined to nominate us as a beneficiary to his insurance policies, something which we have not quite gotten over.
Mobile: 9786 5900
If, like Jiale, you have knowledge to share, or a story to tell, or even questions about Life Insurance, feel free to reach out to us here.
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.