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Change Of Law For Insurance Beneficiaries Nomination

>> Tuesday, September 8, 2009

If you wanted to change the beneficiary in your life, accident or health insurance policy - say, after a divorce - the law previously did not allow you to do so.

But changes to the Insurance Act which took effect now give policyholders more choices, and a means to ensure that proceeds from their policies are distributed according to their wishes.

Under the new Insurance Nomination Law, holders of policies that are effected on their own lives and which pay a death benefit can choose from two options: Make a trust nomination, or a revocable nomination.

With a trust nomination, the policyholder relinquishes all rights to the policy, and can only regain it with the written consent of all nominees. The nominees can only be the spouse and/or children. The advantage is that in the event, say, that the policy-holder is declared bankrupt, the insurance policy's proceeds are generally protected from creditors.

However, the Life Insurance Association (LIA) noted that a trust nomination could be inflexible; it should be considered only if a policyholder is prepared to give away the proceeds completely to the nominees.

"You must also be aware that you will not be able to unilaterally change your nomination(s) later on, even if your family circumstances have undergone change," added LIA.

But under a revocable nomination, a policyholder is free to change, add or remove nominees without their consent. Only death benefits from the policy will be payable to the nominees, while all living benefits will be paid to the policyholder. He can nominate any legal entity, including parents, friends and trusts, as a beneficiary. But there is generally no protection from creditors.

Before the Insurance Act was amended, an ill or disabled policyholder would have been unable to access the policy payout that went to the named beneficiary.

The new law, however, does not apply retrospectively to existing policies with previous nominations. Those that did not name a beneficiary previously can make a nomination under the new law.

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