It's no secret. The sole purpose of buying life insurance is to ensure that your loved ones are protected financially in the event of your death.
In addition to helping support dependents, life insurance can also provide an immediate cash payout upon death. This might be a handy source of cash to pay the deceased's debts, funeral expenses, and income.
In this piece, we discuss the importance of making a nomination for your life insurance policy and how it works.
What does making a nomination even mean?
In simple terms, making a nomination in your life insurance policy means choosing someone to receive or manage the money disbursed by the insurance company when you die.
Why should you make a nomination? Well, to save time and hassle.
If you do not make a nomination in your insurance policy your insurance company is not obligated to pay out until your loved ones obtain a Grant of Probate, Letter of Administration or Distribution Order - that might take several years. Making a nomination means these documents are not needed, so the insurance company will disburse payment much faster.
How does it work?
Step 1: Fill up the nomination form provided by your insurance company. This usually requires the following details about the person you are nominating (you can choose to nominate whoever you want):
- Date of birth
- IC or birth certificate number
Step 2: Get a witness who is at least 18 years old to countersign your nomination form. He or she must be of sound mind and not your nominee.
Step 3: The most important step. Ensure that your insurance company endorses the nomination on either the policy document or on the nomination form.
You have the option of making multiple nominations. If you do not specify the portions to be paid to each person, the money disbursed from the policy will be distributed equally.
Do all nominees receive the same benefits?
No, what you get as a nominee depends on your relationship with the policy holder and if you are Muslim or non-Muslim:
1. Trust Policy
If the nominee is your spouse or child, a trust will be created under their name.
They are entitled to the full amount of the policy money. If there is no living spouse or child at the time of nomination and you nominate your parents, then they will be entitled to the full amount of the policy money.
2. Non-Trust policy
This policy applies if the nominee is someone other than your spouse, parents or children.
For example, if your siblings or friends are your nominees, they will only receive the money as an executor and must distribute it according to the will, or if there is no will, then the applicable laws of distribution.
3. Muslim Policy Holder
A different rule applies to Muslim policy owners, regardless of relationship, the nominees can only receive policy money as an executor. The money received will be distributed according to Islamic law.
And that's it! Anyone who has a life insurance policy should always select a nominee. This ensures that your loved ones are always covered - even when you aren't around anymore.