Well, I learnt something useful today. I’m not an insurance person, so I’ve always found it very confusing when trying to deal with the types of nominations under the important sections 166 and 167 of the Malaysian Insurance Act 1996.
According to this friend of mine who IS well-versed with insurance laws in Malaysia, section 166 applies when you make a nomination when buying an insurance policy after marriage. Only your spouse and/or children can be nominated. Your parent can be nominated under this section 166 if, at the time of purchase, you are not married.
Nobody else qualifies as a nominee under section 166. When you die, the insurance money goes into a Trust under this policy and then gets paid to the nominee who is now the beneficiary of this Trust. The beauty of this Trust is that no creditor can claim against it. So you can’t have the creditor coming up to the beneficiary and trying to make a legal claim on the insurance money.
On the other hand, when you buy an insurance policy before marriage, the person you nominated in the policy – who can be your sibling or a relative or even a friend but other than your parent – can only receive the insurance money on behalf of your estate. This means that the nominee cannot claim the money as belonging to him (or her). Instead, the nominee is duty bound by law to pass the money along to the rightful Executor or Administrator of your estate.
What can be done if the insurance money is not handed over by the nominee? No need to make a hue and cry, said my friend. Get a lawyer to send him a “friendly” note. He’ll get the message.
So what happens next to the money once it goes into your estate? Only two things: first, if you die without a Will, the money is distributed according to the Malaysian Distribution (Amendment) Act 1997 and everyone with the legal right to be your beneficiaries are entitled to their portion of the policy money.
Second, if you die with a Will, the money is distributed according to the instructions in your Will. Unfortunately for most people, there is no provision in their Will to deal with such insurance money. In this case, the money goes into the residuary portion of the estate and from there, it is distributed to the named beneficiaries of the residuary amount.
This may not be entirely to your liking because you may have intended that the money goes to the person you nominated originally. To get around that, you should seriously consider adding a clause in your Will to say that the policy moneys are meant to be given the persons nominated in the insurance policies. Remember, this is only for insurance policies under section 167 of the Malaysia Insurance Act 1996.
I guess these points should keep everybody happy, including the deceased.
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