In the previous issue of Cover Note we saw that we can purchase life insurance under the Married Women’s Property Act 1847, creating an irreversible, legally protected trust in the proceeds of the insurance in favor of the wife and/or children as beneficiaries. The policyholder himself cannot change his mind and reverse this decision.
Nominations, on the other hand, can be made at any time and can be cancelled, amended or replaced over time. They can also be in favor of one or more people and you can specify the percentage that each person should receive. You can nominate minors with additional formalities, and your nominee can be a distant relative or a friend. You can also make consecutive nominations to provide a scenario where nominee B receives the money if nominee A dies before you.
As a reminder, a nomination is your instruction to the financial institution (in this case, the insurance company), and the same concept applies to bank and securities accounts and certain investments. You tell the organization that if you die, they can pay the outstanding balance of your financial instrument to the nominee. This concludes the responsibility of the organization. Whether or not that nominee is your intended ultimate beneficiary is irrelevant to this Agreement.
If you want to nominate your daughter for your life insurance because she lives in India and can do the paperwork to claim the money, but you want her to split the money equally with your son who lives elsewhere, it’s up to you, to make this family agreement in the most appropriate way.
Make your nominations as you make the investment, receive written (stamped and signed) confirmations with date and reference number and archive them securely. Tell your daughter where those papers are. Every time you change your nomination (which can also be done through a will), you go through the same process. The last nomination overwrites the previous ones.
An assignment is another type of arrangement for the proceeds of your life insurance. It is a legal transfer of right, title and ownership of the policy from you, the policyholder, to another person out of love and affection or financial obligation, or to an institutional lender such as a housing association, your own insurer in the case of a policy Loan. This must be done by adding an addendum to the policy contract.
Assignments may be absolute or conditional and the assignee shall have remedies to uphold the assignment. And last but not least, the assignee is entitled to the insurance proceeds.
If nomination and assignment are important, it is just as important, if not more so, to undo or modify them when necessary.
We’ve seen changes to nominations before. You must also be vigilant in terminating your policy’s allocations at the right time. In other words, you may have to relinquish your insurance rights, but you will also have to reclaim or revoke them at the appropriate time.
For example, if your loan has been repaid, make sure you complete the paperwork for canceling the assignment so you can relieve your policy. An uncancelled assignment can lead to paperwork if the policy expires or the policyholder dies. If you cancel an assignment for a nominated policy, the nomination will be revived.
There are many permutations and combinations of these situations, and you would do well to take full advice and advice from your insurer so that your family inherits your legacy and not the legwork.
The bottom line is that taking back is just as important as giving!
(The author is a business journalist specializing in insurance and corporate history)
