I believe many people have a life insurance. Most of us have also done nominations on the insurance policies. Who do you usually nominate ?
A father with kids normally will nominate his spouse as the sole beneficiary of the insurance pay out or will distribute the payout by percentage equally to spouse and kids. This nominations seems normal but WHAT IF the father die together with the spouse ?
Two scenario can happen here. Assume father give 100% nomination to wife and wife pass away same time with father. If the father have written a Will, the insurance payout shall pay to his Will and shall follow the Will distribution. If the father does not have a written Will, the payout will be stuck for a while, waiting for the ‘Letter of Administration’ by the court. (The process can be take up to 2-8 years, depends on the complexity of the estate). If no one come forward to redeem, the insurance payout will transfer to public trustee, Amanah Raya Berhad. In actual fact, do u think the kids aware of this insurance payout ? Or do you really tell your kids how much insurance you have bought to benefit them in the future ?
WHAT IF the father directly nominate his kids and the father die before the kids attain age 18 ? If this happen and you have appointed a Trustee to hold the insurance payout, the Trustee will hold it on behalf. If no appointed Trustee, surviving parents including ex-spouse can take charge of the money. If have competent beneficiary, example one kid have attain the age of 18, this child can hold the money on behalf of the kids below age. This may lead to quarrel in the future if money do not manage properly. If no surviving spouse and the child haven’t attain age 18, money proceed will go to Amanah Raya Berhad and child able to claim it when they reach age 18.
If you named your beneficiary 100% to spouse, what are the risk involved ? What if the spouse remarry and do not take care of the kids ? What if the spouse squander the child inheritance or being cheated by other party ? What if the spouse pass on before distributing the money ? Will your spouse use the money as per your wishes ?
If you named your old age parents as beneficiary, what are the risk ? Are they physically or mentally fit to make the claim ? Are they able to go to bank easily to withdraw the money ? Will they get cheated easily ?
Don’t forget, insurance also cover a person from disability. Can you figure out how a person in coma or facing other permanent disability withdraw money from his bank account ?
Looking at all the potential risk ahead, are your intention able to fulfill with just an insurance nomination ? What else can we done to make sure the intention being carried out ? Some may ask, can I write a Will to protect my insurance money ? Yes you can but the question is, can the beneficiary wait for 2-3 years before they get the money ? How are they able to survive without being supported financially ?
Solution ? Place your insurance into a Trust. Insurance Trust can help you to protect, preserve and distribute your insurance payout when you unable to do so. When an insurance trust is in place and trigger events happen (death or coma or other disability), money can be channel to the right place as per instructed in the Trust earlier. For example, insurance trust can help to continue support your family maintenance, medical fees and education for your children. If disability takes place, money can be channel for the use to pay medical bills and nursing, pay monthly bills and family maintenance.
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