Here Are The Nominees...
Not many people know this, but if you do not have a Will, your insurance proceeds will be distributed according to intestate law.
Case in point: Couple of days ago, a client called to ask me how much her mother will get from the whole-life policy she bought if she passed away. She was quite surprised when I told her that under the intestate law, her mum would get nothing. As it stands now, her husband will get 50% and the remaining 50% will be divided between her two kids.
But all is not lost. She can nominate her mother as a beneficiary under the Insurance Act.
There are two types of nominations:
- Trust or Irrevocable Nomination, commonly known as Section 49L.
- Revocable Nomination, commonly known as Section 49M.
For the first type of nomination, the beneficiaries can only be your spouse or children. You will lose all the rights to your policy. And as the name suggests, you cannot undo the nomination unless the beneficiaries agree to it (good luck to you if the beneficiary is an embittered ex-spouse). But the proceeds will be protected from creditors.
For the second type of nomination, which is what I recommended to my client, you retain all the rights to your policy and you can nominate anyone (yup, anyone…). Unlike the Trust Nomination, you can undo it any time you want. You do not need to beg or threaten. But the downside is that your money will not be protected from creditors.
So if for any reasons, you want somebody, who is not eligible under the intestate law, to get your insurance payout, you might want to do a Revocable Nomination. It is a cheaper option than doing a Will. In fact, it is free.
(Obviously, there are more to nominations than what I have written, but they are beyond the scope of this post. Will write more in another post.)