Life policy owners can no longer be trustees | theSundaily

This rather interesting article was written by Sun Daily. It concerns the appointment of trustees for life policies under the new Financial Services Act (FSA), 2013.

Under the new FSA, policy owner can no longer appoint himself/herself as the trustee of the policy moneys. In the event no trustee is appointed, the beneficiary (or nominee) who is competent to contract will be the trustee. If the beneficiary is incompetent to contract, the parent(s) of the incompetent beneficiary (other than the policy owner) will be the trustee. Only when there is no surviving parent of the incompetent beneficiary, the Public Trustee will then be appointed. 

I think the public will encounter problems as costs would be incurred with any appointment of trustee. Like Rockwill said it all, the costs run into thousands…. Anyway, for policy owner to appoint himself or herself to be one is also not practical. But then, what’s stopping you to appoint your spouse as a trustee.

What do you think?

Sun Daily | KUALA LUMPUR (Aug 23, 2013): 
Policy owners and insurance companies have an inevitable headache looming, as they scramble to make sure they comply with a new rule which stipulates that policy owners can no longer name themselves as the trustee to their life policies.This applies to both new and existing policies.

Rockwills Corp Sdn Bhd group managing director and director Saw Leong Aun said under Schedule 10 of the new Financial Services Act 2013 (FSA), which came into force on July 1, 2013, it is stated that policy owners “may appoint any person other than himself to be trustee of the policy moneys”.

This wasn’t the case under the previous Insurance Act 1996.

“In the past when a person buys a life policy and names his spouse or kids as a beneficiary, he would usually appoint himself as the trustee. But because of the change in the law, they can no longer do so,” Saw told SunBiz in an interview.

He sees problems occurring in situations where the spouse of the policy owner doesn’t want to be appointed the trustee and their children, as beneficiaries, have yet reach the legal age of 18 years.

“So, if the policy owner dies and his children are still minors, the policy moneys would automatically be held by Amanah Raya Bhd (as the country’s public trustee) until the children reach 18 years of age or unless there is a competent trustee available to take over.” “Also, when there is no proper appointment made, the risk is that the new trustee who takes over is not the one the policy owner preferred or trusted,” he added.Nevertheless, Saw believes that the new rule makes good sense.

“The new rule is good because how can you name yourself as trustee to manage the policy moneys when you are no longer around and before the (life insurance) claims can be effective? Thus in a way, the change in the law is correct but is a small inconvenient (to existing policy owners),” said Saw.

“And at least the objective of buying an insurance, that is, to ensure your insured moneys reach the hands of your children and family is met with a trusted or licensed trustee appointed.”

Still, the new rule is relatively unknown to most policyholders as insurance companies and their agents are only beginning to communicate this with their customers.

An insurance agent, who only wants to be known as Anthony, said so far no timeline has been set for insurance companies to comply with the new rule.

“So, the onus is on the respective insurance agents to contact their customers to notify them of the change in the law,” he told SunBiz.

Meanwhile, Saw sees a business opportunity for Rockwills Trustee Bhd to become a trustee to policy owners’ life policies by setting up insurance trusts.

“Licensed trust companies like Rockwills Trustee will follow instructions as instructed by the person who created the insurance trust. This way, the beneficiaries won’t be able to squander the policy moneys or be cheated of their inheritance. We also have full-time in-house legal advisers to support and check all trusts,” said Saw, adding that the awareness on insurance trust among Malaysian policyholders is still low.

What is the fee? Saw said Rockwills Trustee charges a once off fee of average RM1,500 to RM2,000 to set up an insurance trust, which may include as many life policies as you wish. “And where the policy owner dies and we act as trustee, our fee is 0.75% of the total insurance moneys or a minimum fee of RM2,000 a year during the holding years. We normally put the balance policy moneys into fixed income investments such as fixed deposits and the money market, and any interest earned will go back to the trust fund and the beneficiaries,” he added.

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