Life insurance is a legal contract between the insurance company and the insured. on the condition that the insured pays the premium, the insurance company will pay the sum insured to the legitimate policy holder if an unplanned risk occurs (for example, death, critical illness or permanent total disability) after a waiting period established. Examples of such legitimate owners are: the owner of the policy, the insured’s estate, the trust or the beneficiary. the sum insured settlement is by check and is generally denominated in singapore dollars. Some insurance companies write life policies in US dollars.
Life insurance occupies a unique place in estate planning that is not replaceable by other assets. This is because a number of Singapore’s statutes and case law give unique and advantageous legal positions to a life policy that are not available to other assets. therefore, a properly structured life policy can expand your wealth and provide a smooth transfer of wealth to the next generation without the problems that other assets often experience. The 4 main advantages of life insurance are the following:
- create & guarantees immediate capital to your estate for your loved ones.
- provide liquidity to your assets without legalization
- income can be protected from creditors of your estate
- The policy may be nominated or assignable to a third party to facilitate estate distribution objectives.
- Section 61 of the Insurance Act allows an insurance company to pay up to $150,000 of the sum insured to your estate (via the proper claimant) without probate or a letter of administration.
- section 49m of the insurance law allows an insurance company to pay the total sum insured to its named beneficiary on the revocable nomination form without a will or letter of administration.
- section 49l of the insurance law allows an insurance company to pay the total sum insured to its appointed trustee(s) on the irrevocable nomination form without a will or letter of administration.
- If a life policy is assigned to a third party, which is legitimate under insurance policy law, the sum insured will be paid in full to the life policy holder without the need for succession or letter of administration.
create & guarantee immediate capital to your estate for your loved ones.
Life insurance creates and guarantees immediate capital to your estate for your loved ones upon your death. This is important because, in the absence of insurance capital, a family generally has to liquidate certain assets, if any, to finance their livelihood when the key man in the house dies.
A common example is the death of a working husband. deaths of working husbands in families often cause financial hardship for the family. Realistically, most of our family’s assets are acquired through debt or credit. For example, it is very common for couples to take out a mortgage on the family home. The death of a work group can cause financial difficulties to the other members of the family. the debt will still have to be paid, and almost all mortgage contracts will tie the liability to the other party in the house, which is usually the wife.
Secondly, not many of us have enough cash in the bank to generate income. assuming your family needs $5,000 per month to live on for the next 20 years. You would need a starting capital of $2,000,000 (assuming the capital is intact and the income drawn from the capital is 3% per year).
In view of the high cost of living in Singapore, not many families have that kind of start-up capital without liquidating assets. life insurance is designed precisely to solve this problem where no other financial product can: create and guarantee immediate capital for family financial security when you die.
another benefit of life insurance is that the insured sum paid from a life insurance contract is not encumbered with other liabilities. In other words, a $1 million sum insured on a life policy is $1 million after your death; while $1 million in your bank savings account might not be $1 million if you have other unpaid liabilities with the bank. This is because your savings in the bank could have been taxed on your overdraft, credit card, or even your mortgage; your property is usually encumbered with a mortgage. If he is an entrepreneur, his personal wealth could be encumbered by his business liabilities through his personal guarantee with the bank.
How much life insurance should you buy for your estate plan? You may want to ask your spouse this question: “How much capital do you need to feel safe if I die tonight?”
provide liquidity to your assets without legalization or a letter of administration
Your assets will need to go through probate or administration before they can be distributed to your loved ones. There are legal exceptions to life policy income, making it a valuable estate planning tool. In other words, a life policy provides immediate liquidity to your estate when you pass away. this is illustrated by the following laws:
When all other personal assets are frozen in the estate pending probate or a letter of administration, life insurance proceeds are your only source of liquidity for your loved ones. This unique advantage of a life policy is welcome, as a lack of liquidity could lead to the insolvency of your estate, or the need to forcefully sell other assets to raise funds to pay off debts. a forced sale is seldom advantageous. having a life policy would ensure that the estate doesn’t need to dispose of the property at a time they don’t choose.
income can be protected from creditors of your estate
We cannot be sure that, at our death, our estate will be free of creditors. Such unfortunate situations can arise from unpaid debt, personal guarantor noncompliance, or loss of a judgment. in such situations, creditors may issue a warning on the estate, which will further delay the liquidation of the estate and ultimately lead to dilution of the value of the estate.
Section 49l of the Insurance Act allows a life policy to be structured as a statutory trust policy. To meet this requirement, the policy must be expressed for the benefit of the spouse and/or his children. Life insurance proceeds paid under this condition will be protected from creditors.
Prior to September 1, 2009, proceeds payable under a life policy (which complies with section 73 of the Property and Transfer Act) are also protected from claims by the owner’s creditors. The policy. to meet the requirements of section 73, the policy must also be expressed to benefit the policyholder’s spouse and/or her children. if the policy is expressed to benefit persons other than these parties, income will not be protected by this section. currently, this benefit is provided by section 49l of the insurance law.
the policy may be nominated or assignable to a third party to facilitate estate distribution goals
There are situations where distributing wealth through a will is inconvenient, such as when you have a non-traditional family relationship (for example, when you live with your partner), or if you are a Muslim, in which case some members of your family could be in a financially disadvantaged position if your estate is distributed according to faraid (i.e. the Islamic law of wealth distribution). Other inconvenient situations include the circumstance where you have an illegitimate child whom you wish to support, and the situation where you are in a second marriage and would like to support your children from your previous marriage.
A properly structured life policy could pass the sum insured to the intended person through a revocable or irrevocable policy assignment or nomination. income can be paid without succession, letter of administration or certificate of inheritance. In some cases where family relationships are strained, this unique feature of life policies can help minimize or avoid potential family conflicts resulting from estate distribution after your death.
These 4 advantages show that a properly structured life policy can perform the wealth building, wealth protection and wealth distribution functions of estate planning. no other financial asset can replace the life policy in these areas.