Importance of Making a Nomination

The purpose of having life insurance is to ensure that our loved ones are protected financially should anything happen to us. It is then important that our loved ones can access the funds quickly. 

If we do not make a nomination in our insurance policy, the insurance company is not obligated to release the policy moneys until our loved ones obtain a Grant of Probate or Letter of Administration or Distribution Order, which may take several years.

However, if a nomination is made, the policy moneys can be disbursed much faster without the need to obtain the Grant of Probate or Letter of Administration or Distribution Order.

In addition, in the case of a non-Muslim policy owner, a trust will be created in favour of the nominee under the following circumstances:

• if the nominee is the spouse or child of the policy owner, or
• if the nominee is the policy owner's parent (provided that there is no living spouse or child at the time of such nomination)

When such a trust is created, the policy is known as a trust policy. As a trust policy, the policy moneys payable do not form part of the estate of the deceased policy owner and are not subjected to the deceased policy owner's debts. this ensures that our loved ones get the full amount of the policy moneys payable. However,  this is only applicable if the policy is taken in good faith and with no intention to defraud creditors. 

A trust policy does not apply in the case of a Muslim policy owner. The nominee of a Muslim policy owner takes the policy moneys only as an executor and must distribute the moneys in accordance with Islamic laws.

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