If you have made will, you know the importance of making your asset distribution clear so no confusion for your family members. But have you made an insurance nomination previously? Do you remember who were the beneficiaries? Do you need to revoke the nomination before the instruction in the will takes effect?
In general, your Will overrides the insurance nomination made under your Insurance Policy. But this will not work in two scenarios:
- If your insurance nomination creates a Nomination under Section 49L Insurance Act or
- You have made a specific assignment.
Understand implied trust
A “Nomination under Section 49L Insurance Act”, in a layman’s term, is an irrevocable nomination. When I say irrevocable, it means that you have “given” the insurance benefits to your named beneficiaries and “vowed” that you will never take it back. So it is understood that this cannot be voided by a will.
However, like all matters in personal finance, things are not always so simple as we wish. This is because there was NO Section 49L Insurance Act before 1 September 2009, when the new Nomination of Beneficiaries Framework was introduced.
For all the policies sold before that date, the nomination of beneficiaries was governed by either
- Section 73 of the Conveyancing and Law of Property Act (CLPA) or
- Section 45 of the Co-operative Societies Act (CSA) for NTUC Income life policyholders.
Prior to September 1, 2009, if the nominated beneficiaries are spouse or children, an “implied trust” is created and thus cannot be voided by a Will. The court had ruled that when a Policyholder named his or her spouse and/or children as beneficiaries, the beneficiary(ies) became the subject of an “irrevocable trust” under Section 73 of the Conveyancing and Law of Property Act (CLPA).
In other words, the policy effectively became the property of the beneficiary, protected by legislation designed to ensure that family members, not creditors, benefit from such funds.
Now ask yourself, how many of you have bought insurance policies before 2009? Not all people have indicated their beneficiaries in their insurance applications, but I am sure that there were hundreds of thousands of policies under Section 73 implied trust, and these policy owners may not even be aware of that because the creation of the trust was without a trust deed, i.e. no formalities.
Should you use a will to override your insurance nomination
Even if you have made a revocable nomination after September 1 2009. I won’t advise you to “override” it by a will. The best practice is to write to your insurer to formally revoke the nomination to avoid any confusion or dispute in the future.
Do you have a policy with irrevocable nominated beneficiaries under Section 73?