Singapore, 7 December 2005... The Monetary Authority of Singapore (MAS) has released a consultation paper on a proposed framework for the nomination of beneficiaries in respect of the proceeds of insurance policies.
2 Presently, there are no provisions in the Insurance Act to govern nomination of beneficiaries. Instead, a nomination by a policyholder of his spouse and/or children will automatically create a statutory trust in favour of the spouse and/or children governed by section 73 of the Conveyancing and Law of Property Act (CLPA). The creation of a statutory trust effectively causes the policyholder to lose all rights to and control over the policy. This means that without the consent of all the beneficiaries, he cannot make any change to his nomination or the terms of the policy. There have been concerns over the apparent ambiguity and inflexibility in the application of section 73 of the CLPA to insurance policies. With increasing public awareness of the need for long-term financial planning and changes in family circumstances, policyholders also desire greater flexibility with regard to how their insurance policy proceeds are to be disbursed.
3 In view of the above, MAS proposes to amend the Insurance Act to bring under its purview the nomination of beneficiaries in respect of the proceeds of insurance policies. The new framework will be based on the principles of flexibility and clarity. Section 73 of the CLPA will be correspondingly repealed.
4. The key recommendations of the new nominations framework are:
The new framework will apply to all insurers and policyholders.
Only life and personal accident insurance policies will be eligible for nomination.
A policyholder will have the choice, at any time while his insurance policy is in force, to make a revocable nomination, an irrevocable nomination or no nomination at all.
A revocable nomination will preserve the policyholder's ownership of his insurance policy. Beneficiaries will only receive those policy proceeds paid out upon the policyholder's death; proceeds paid out during the policyholder's lifetime will go to him. Hence, should illness or disability befall the policyholder, he will be able to use the policy proceeds to meet his own financial needs.
An irrevocable nomination will create a statutory trust in favour of the beneficiaries i.e. the policyholder's spouse and/or children. This will be the same as the current trust created under section 73 of the CLPA. The trust will generally protect the policy proceeds from the policyholder's creditors, and these proceeds may be considered a separate estate for the purposes of calculating estate duty. At the same time, the policyholder loses all rights to and control over the policy. Any changes to the nomination and/or policy will require the consent of all the beneficiaries. All policy proceeds from an irrevocably-nominated policy will go to the beneficiaries.
Policies paid for in whole or in part with Central Provident Fund (CPF) monies i.e. Central Provident Fund Investment Scheme (CPFIS) policies will be eligible for revocable nominations only.
Prescribed statutory forms must be used for the purposes of nomination.
5 The proposed framework will apply to policies incepted after the Insurance Act amendments come into force. New nominations made to a policy which was incepted prior to the amendment will be recognised under the new framework only if the policy is not already encumbered by other legal obligations. For example, if a policyholder had already created a statutory trust over his insurance policy under section 73 of the CLPA, he would not be able to change his nominations under the new framework unless the consent of all existing beneficiaries were obtained.
6 MAS invites comments on the recommendations set forth in this consultation paper, which can be found on the MAS website (Click here to view the Consultation Paper (78.9 KB) ). Comments may be submitted to nobreview@mas.gov.sg by 18 January 2006.