This is my thoughts on the irrevocable trust insurance nomination in the recently announced Nomination of Beneficiaries (NOB) framework. In the news is that the new regulation permits one to nominate his or her life insurance policies either as revocable or irrevocable nomination. Much resources have been put in place to provide greater clarity in law but I would say that the authorities were barking at the wrong tree? Why?

In the old system, nominating one’s spouse and/or child creates an irrevocable trust as spell out under the Section 73 Conveyancing and Law of Property Act. There was no provision to nominate parents and other people like siblings. So those who previously nominated parents and siblings are now holding on to life policies that are in the “libo.” On the 12th page of the Life Insurance Association (LIA)’s new booklet on “Your Guide to the Nomination of Insurance Nominees 2009”, it stated that those with such life policies are to seek “legal advice.” Well, when you need to talk to lawyers, it means you are holding on to trouble.

So the government has put much effort to change legislation by introducing S49L and S49M of the Insurance Act so as to provide greater clarity. But as I mentioned above, the government is barking at the wrong tree. In the old regime, the root cause of the confusion isn’t because the law was unclear. The root cause was because insurance agents did not do a proper plan for their clients. As I mentioned in the previous posting, insurance agents whom under the request of their clients to ensure insurance proceeds are given to their intended beneficiaries would just allow their clients to do nomination. So policyholders nominated their children, spouse, parents, siblings and others. This happens because nomination is FREE for the policyholder and at the same time it is an easy job for the insurance agent. After all, filling up the nomination form takes only a few minutes and they will be able to close the deal. If these insurance agents want to do a good job by providing a comprehensive estate planning service, they earn nothing since there is no commission for such service. You see, there is no product to sell just for doing a service. So now you know that the root cause of the previous confusion is because of lazy insurance agents who focuses on sales rather than advisory service. The government has been barking on the WRONG tree. From what I see, there is no need to spent so much resources (I pay tax you know!) in modifying legislation, argue in parliament and “educating” existing financial advisers on the new framework. The old S73 does serve its purpose for providing a cost effective way for asset protection from creditor if that is a need for policyholders.

The government should spend more time increasing the competency of financial advisers rather than focusing on the wrong things. The root cause of the S73 problem was due to lazy and incompetent financial advisers who were focusing too much on product sales. Perhaps the government should setup a “MoneySense” equivalent to educate financial advisers on how to do their job properly.

I also read from newspaper that the new S49M (revocable nomination) does not cost money but writing a Will does. So it is argued that the former has this advantage. Come on, insurance agents have been earning huge amount in commissions for selling lemon insurance products and yet providing poor advice. A simple Will only cost a few hundreds of dollars. Just claw back some commissions from the agent to pay for the Will. By doing this, the Will becomes “free” also.