Policyholders advised to name their beneficiaries

10 May 2015 
SOURCE: The Sunday Times © Singapore Press Holdings Limited. Reproduced with permission

By Jacqueline Woo

Few policyholders are aware of the importance of nominating a beneficiary such as a loved one in their life insurance policies, said Aviva Singapore chief operating officer Lee How Teck.

Only about 2 per cent of the insurer's individual life insurance policies have beneficiaries named, yet the consequences of not doing this can be serious.

Ms Lee told The Sunday Times in a recent interview: "If the policyholder does not name a beneficiary, and he dies, his family must go through a (protracted) legal procedure before obtaining the full sum. When family members are already grieving over a loss, this legal hassle will be the last thing they want to deal with."

If a policyholder has not named a beneficiary, insurance companies can legally pay out only an initial sum of up to $150,000 to a "proper claimant", said Ms Lee. This "claimant" is defined as the executor, spouse, parent, child, sibling, nephew or niece of the person who has died.

The rest of the funds will be held until the family obtains a court order known as the Grant of Probate or Grant of Letters of Administration. This allows them to gain ownership of the person's assets in bank accounts, investments, real estate and life insurance policies. While the application process typically takes about six months, Ms Lee noted that if a policyholder's possessions are extensive or complex, the process can "drag on for years".

"The implications are easy to see - a longer waiting period with more time and effort spent on sorting out the paperwork. This is clearly not ideal, especially when family members are grieving."

But if a policyholder has nominated specific individuals, the entire amount can be paid out without the need for legal procedures.

Ms Lee said that there are two types of nominations - an irrevocable (trust) and a revocable one.

In an irrevocable (trust) nomination, a policyholder loses all rights to the ownership of his policy once he decides who will receive the benefits. He can revoke the trust nomination only with the consent of all his nominees.

A policyholder with a revocable nomination can make changes without his nominees' consent.

"When it comes to nominations, there isn't a 'better' type. It's all about considering which one is more suited to the individual circumstances and needs when making a decision," said Ms Lee.

While only 2 per cent or so of Aviva's individual life insurance policies - the bulk of which are revocable nominations - have beneficiaries named, these numbers should pick up, given the benefits, said Ms Lee. "Making a nomination is easy," she noted, adding that the process can be done online or through a financial adviser. "A small bit of paperwork today will go a long way in giving comfort to your loved ones when the time comes."


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