INSURANCE (AMENDMENT) BILL 2008

Mr Speaker Sir, on behalf of the Senior Minister, I beg to move that the Bill be now read a second time.

OVERVIEW

2   The Bill seeks to incorporate into the Insurance Act (“IA”) a framework for nomination of beneficiaries in respect of insurance policy proceeds.  This framework will give policy owners clear, simple and economical means to decide on how the proceeds from their insurance policies should be disbursed.

3   The Bill also aims to clarify the insurable interest requirement relating to life insurance policies.

4   Currently, the IA does not contain provisions for the nomination of beneficiaries. 

5   Case law suggests that when a policy owner names his spouse and/or children as beneficiaries of an insurance policy effected on his own life, section 73 of the Conveyancing and Law of Property Act (“CLPA”) will automatically create a statutory trust in favour of the beneficiaries.  The creation of such a trust implies that the policy owner will irrevocably lose all rights and control over the insurance policy concerned, including payouts made when he is alive.

6   On the other hand, if the policy owner nominates someone other than his spouse and/or children, no nomination will be recognised under section 73 of the CLPA.  Since there is presently no provision for nomination of other types of beneficiaries in the IA, the status of such nominations is uncertain.

7   Thus, there have been concerns over the apparent ambiguity and inflexibility in the application of section 73 of the CLPA to insurance policies. For this reason, the IA will be amended to introduce a framework for nomination of beneficiaries in respect of insurance policy proceeds. 

8   In preparing this Bill, MAS has consulted the industry and the public on the policy positions as well as on the draft Bill.  Inputs received were carefully considered and have been incorporated into the Bill where relevant.

9   Mr Speaker Sir, I will now touch on the key features of the nomination framework for insurance policies.

NOMINATION OF BENEFICIARIES FRAMEWORK

Choice to nominate

10   Under the nomination framework, insurance policy owners will be able to choose whether or not to make nominations.  If they choose to nominate, they then have the option of making either a revocable or an irrevocable (trust) nomination. Nominations may be made at any time.

Revocable nominations

11   With a revocable nomination, the policy owner will be able to unilaterally change his nomination at any time.

12   Any payout from the insurance policy made while the policy owner is alive will be paid to him; payouts will only be made to the beneficiaries upon the policy owner’s death.  Hence, should the insurance policy pay out benefits in the event of the policy owner’s illness or disability, he will be able to use these monies to meet his financial needs.  For minor beneficiaries, a parent or guardian who is not also the policy owner can give discharge for payments received from insurers.

13   Any legal entity may be nominated in a revocable nomination.

Irrevocable (trust) nominations

14   An irrevocable nomination will create a statutory trust in favour of the beneficiaries, similar to the regime under section 73 of the CLPA.  Once a trust is created, the policy owner will lose all rights and control over the insurance policy concerned.  In exchange, the statutory trust will protect the policy proceeds against claims from the policy owner’s creditors.]

15   An irrevocable nomination can only be changed with the consent of all beneficiaries or a trustee who is not also the policy owner.  Once an irrevocable nomination has been made, all payouts from the insurance policy, whether made during the policy owner’s lifetime or after his death, will go to the beneficiaries.  As with revocable nominations, a parent or guardian of a minor beneficiary who is not also the policy owner can give discharge for these payments.  Such a parent or guardian can give consent on the minor’s behalf for revocation of the nomination as well.

16   As an irrevocable nomination is a serious undertaking which cannot be unilaterally reversed, only the policy owner’s spouse and/or children can be nominated as the beneficiaries.

17   Policy owners should only make irrevocable nominations if they are prepared to give away the insurance policy proceeds completely to the beneficiaries.  They need to be aware that they will not be able to unilaterally change their nominations later on even if their family circumstances change.

Scope of the nomination framework

18   Policy owners may make nominations only in respect of (i) life policies and (ii) accident and health insurance policies that have death benefits.  This is because only such policies have a savings and investment element for which nominations will be meaningful. 

19   The nomination framework will not apply retrospectively. As such, insurance policies with existing nominations will continue to be subject to the laws in-force at the time the nomination was made.  For instance, policy owners will not be able to change or revoke existing nominations falling under section 73 of the CLPA.

Insurance policies paid for with Central Provident Fund ("CPF") monies

20   Insurance policies purchased under the CPF Investment Scheme and Dependants’ Protection Scheme will be eligible only for revocable nominations.  This is because an irrevocable nomination would cause the policy owner (CPF member) to lose control over any insurance policy proceeds paid out during his lifetime, which would not be in line with CPF Board’s policy that members must retain complete ownership of their retirement funds as long as they are alive.

21   Annuities purchased under the Minimum Sum Scheme will be carved-out from the nomination framework altogether to enable CPF Board to retain full control over the disbursement of proceeds from such policies.  On the other hand, annuities purchased under the Minimum Sum Plus Scheme will be deemed no different from any other insurance policy as they are paid for with cash.

INSURABLE INTEREST REQUIREMENT

22   Apart from the above amendments to introduce the nomination of beneficiaries framework, other substantive amendments to the IA relate to the insurable interest requirement for life insurance policies. 

23   A person is said to have an insurable interest in something when the occurrence of the insured event would cause that person to experience a loss, suffer a diminution of a right recognised by law or incurring a legal liability.   Policy owners of life insurance policies are required to have an insurable interest in the life assured (i.e. the person being covered) under the policy.  This is to minimise the risk of someone purchasing a life insurance policy on an unrelated person and then causing the latter’s death in order to collect the insurance payout.   

24   While the concept of insurable interest remains relevant, it is unnecessarily restrictive with regards to trust structures.  As a trustee is deemed not to have an insurable interest in the settlor and beneficiaries of a trust, the requirement of insurable interest prevents life insurance policies from being issued in respect of trusts. Individuals are therefore unable to include such policies in their trusts.

25   Hence, to facilitate the inclusion of such policies in trust structures,  the IA will  be amended to allow life insurance  policies to be issued in respect of trusts where insurable interest would have been recognised between two parties within the trust structure were it not for the existence of the trust.  In other words, the law will allow a "see through" of the trust to determine whether the insurable interest requirement is satisfied.

CONCLUSION

26   Mr Speaker Sir, the nomination of beneficiaries framework contained in this Bill will clarify the current uncertainty surrounding the disbursement of insurance policy proceeds.  It will provide policy owners with a clear, simple and economical way to decide how their policy proceeds should be paid out.

27   Mr Speaker Sir, I beg to move.

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