Appointing Nominees, Trustees and Absolute Assignees in Insurance

There are many different types of insurance policies these days, and you’ll be required to understand a policy thoroughly before signing on the dotted line. To understand the conditions of any policy, it’s important to first know specific terms and phrases used, and what they mean.

In this article, we’re going to look at certain concepts related to the ownership of the policy, in particular, who benefits from it under various conditions. 

Among the most important concepts in policy ownership that we’re going to look at are Nominees, Trustees and Absolute Assignees. 

Different insurance policies will require different concepts, usually not more than one or two at most. 

What is a policy Nominee?

A nominee is a concept that exists in Life Insurance. As the life insurance policy holder, you will be required to nominate someone who will benefit from the policy payout after you pass away. 

The Nomination process therefore is a concept whereby you appoint one or more person(s) to benefit from your policy once it is triggered. 

You are free to nominate anyone you want as a beneficiary, and will be asked to fill in the nomination papers once you purchase the policy. Most policyholders will nominate close family members as their nominees. These include parents, children or spouses. 

Having a nominee makes the beneficiary payout process much easier and faster. Once you pass away, your nominee stands to inherit the amount that your life insurance policy will pay them.

This is done directly within a few months and is more convenient. It doesn't require your loved ones to obtain a Grant of Probate, Letter of Administration of Distribution Order to have the money disbursed, which can take up to several years. 

How Do You Nominate Beneficiaries?

You will be asked to fill in a form by your insurance provider, with all your important information. Most insurance providers don’t have a stipulated time limit for when you should nominate beneficiaries. However, you’re advised to do so as soon as possible to avoid a situation where your policy is left incomplete upon your passing. 

Here are some of the important facts to know when you during the nomination process:

• There is no minimum age for your nominees. However, those who are below 18 will have their money held in trust until they come of age. 

• You are allowed to nominate more than one nominee. For example, 50% for your wife/husband, 25% for your son and 25% for your daughter. 

• In the case whereby your nominee passes away before you, their portion will go to your next of kin. If both you and your nominee have passed away, then the money will be distributed to your nominee’s next of kin according to the law. 

• There are two main types of life insurance, a Trust policy and non-Trust policy. In trust policies, your nominees can enjoy it in its entirety. Non-trust policies are subjected to claims from creditors to pay the deceased’s debts.

Special Nomination Conditions for Muslim Policy Holders

If you’re a Muslim who has purchased a life insurance, your nominee conditions are slightly different from non-Muslims. 

For non-Muslim policyholders, their nominees will stand to gain the money that is paid out for themselves. They will be free to spend it however they see fit. 

For Muslim policyholders, your nominee will only be the executor and will be responsible for distributing the benefits of your insurance to the rest of your family according to Islamic law. 

There is also an added condition for Muslims that your nominee must be at least 18 and above at the time of your passing. 

If you are a Muslim life insurance holder without a nominee, your money will go to a public trustee, who will then be responsible for distributing it according to Shariah law. This will usually take longer to be carried out. 

Alternatively, you can choose to give your life policy benefits to a loved one as a gift ( Hibah) to ensure that they will enjoy the entirety of it. This arrangement has to be done while you are still alive.

There are other special terms and conditions regarding nominees and beneficiaries so do talk to your insurance agent or consultant to understand them fully. 

What Are Policy Trustees?

In certain situations, your nominee may be unfit to manage the money paid out by your life insurance. For example, if your nominee is still a child. 

In situations like this, the money or assets from your policy will have to be taken care of by someone you believe in, and that is a Trustee. 

Trustees can be individuals, or even a board or organization. Some people nominate their lawyers or law firms as Trustees. Trustees hold certain assets or monies for a period of time and for specific purposes only. 

They are not allowed to profit from the trust, and have to be transparent and accountable regarding it throughout the trust period. When their task is complete, they will have to hand the assets over to the true beneficiary or nominee.

What About Policy Absolute Assignees?

As an insurance policyholder, it is possible for you to transfer ownership of your policy directly and fully to another person. This person you are transferring it to is called the assignee. 

If you’re transferring to your assignee without conditions, they’re called Absolute Assignees. If your transfer of the policy is done with conditions, for example as a loan or to repay a debt, your assignees are called Conditional Assignees. 

An Absolute Assignee has full control over the policy once it has been assigned to them, and can enjoy all the benefits of the insurance policy. The transfer of a policy to an absolute assignee has to take place while the original policyholder is still alive. 

Absolute Assignments are done under specific conditions, including:

• Muslim policyholders who want the benefits of their life insurance to go fully to one specific beneficiary.

• As a gift to a loved one for their financial security

• Transfer of life insurance claims from Muslim policyholder to non-Muslim beneficiary and vice-versa.

• Transfer of mortgage, reassignment of mortgage payer

• Transferring policies to trustees until a beneficiary fulfills the conditions to inherit it.

• Transfer of policies to trustees as a form of debt repayment

• To fulfill tax payments

Your insurance policy provider will need both you and your absolute assignee to be present during the transfer process, and there will be some minimal fees for processing and ‘setem hasil’.

We hope these explanations have been beneficial for you. To get a clearer picture, you can always set an appointment with any of our consultants or agents and get all your questions explained in person.