Other than immovable properties (such as your home) and monies in bank accounts, proceeds from insurance policies may constitute the largest asset you leave behind to your loved ones.
An insurance policy is a contract between the insurance company and the insured. The contract works in such a way that the insured will pay a monthly/ annual premium in exchange for financial protection. You are likely to have made beneficiary nominations for your insurance policies. This means letting the insurance company know who will receive the insurance proceeds in the event of your death or disability. The beneficiaries may be anyone you want to receive the insurance proceeds.
How do insurance nomination and Will interlink with each other? To answer this question, you will first have to understand the different types of insurance policies.
1. Life Insurance
For life insurance policies, your beneficiaries are paid a fixed sum upon your death.
2. Health Insurance
These are policies that pay out monies in the event that you suffer an accident, illness or disability to ease the burden of high medical costs.
3. General Insurance
There are many other kinds of general insurance policies that offer insurance coverage for damages to your house, car and other items.
Insurance Nomination and Will
Does your Will supersede the beneficiary nomination in your insurance policies?
Usually, the assets of the deceased will be distributed according to his/ her wishes in the Will. Whether a Will is going to supersede the beneficiary nomination in the deceased’s insurance policies depends on whether the nomination is a “trust nomination” or a “revocable nomination”. A trust nomination is irrevocable and cannot be superseded by a Will.
The insurance proceeds arising from your insurance policies may be subject to distribution under Section 7 of the Intestate Succession Act if:
1. You have not nominated a beneficiary in your insurance policy.
2. And you have not nominated a beneficiary for your insurance proceeds in your Will.
Under the Insurance Act, the insurance company may make payment to a proper claimant (i.e. the executor, widow, widower, parent, child, brother, sister, nephew or niece of the deceased). If the proper claimant cannot be determined, the insurance company may request for a certified true copy of the grant of probate or letters of administration before releasing the insurance proceeds to the claimant.
If you have a Will, your appointed executor (i.e. administrator of your estate) will make an application for a grant of probate (i.e. a Court order allowing the executor to administer the estate). Otherwise, your next-of-kin will make an application for a grant of letters of administration (i.e. a Court order allow him/ her to administer the estate).
In the absence of a Will, your insurance proceeds will be subject to the rules of succession on the Intestate Succession Act. For instance, if you are married with children, half of the proceeds will go to your children and the other half to your spouse. If you are married with no children, half the proceeds will go to your spouse and the other half to your parents.
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