Wednesday, October 10, 2012

Payment of Death Claim Proceeds to Minors in a Trust Policy

The Insurance Act 1996 provides 2 different sections that allow insurers to make payment of death claims where the nominees of the policy are minors. These are found in Section 166(3) and S170.

There is an apparent “overlap” that may occur in some circumstances.

Section 166(3) is more specific for trust policies and directs the insurer to consider the surviving parent as a trustee. The insurer may thus pay the incompetent (minor) nominees moneys to the surviving parent and shall receive a proper discharge for all liability.

Section 170 is probably intended as a wider and general provision as the words in the section also include incompetent nominees who are of unsound mind. Section 170a(ii) further provides that where the policy moneys are more than RM10 000.00, the insurer should pay to the Public Trustee.

Following the above, it is thus quite obvious that there seems to be an overlap of the provisions in the Act when nominees of trust policies are minors.

It is therefore contended that an insurer has a discretion to apply either of the above two provisions when paying out a claim. It is further contended that where there is a surviving parent, the law must have intended that Section 166(3) to apply and payment ought to be paid to the surviving parent. It must also be borne in mind that payment to the Public Trustee will incur expenses in that fees will be charged. These may be completely avoided if payment is made a surviving parent.

For easy reference, the two relevant sections are quoted below.

Section 166(3)
The policy owner, by the policy, or by a notice in writing to the licensed insurer, may appoint trustees of the policy moneys and where there is no trustee

a)      the nominee who is competent to contract; or

b)      where the nominee is incompetent to contract, the parent of the incompetent nominee and where there is no surviving parent, the Public Trustee.

Section 170Where a person has not attained the age of eighteen years, or who is certified by a medical practitioner in the public service to be of unsound mind and no committee of his estate had been appointed, or to be incapable, by reason of infirmity of mind or body, of managing himself and his property and affairs, the licensed insurer

a)      in case of a nominee under subsection 166(1)
i)                    if the policy moneys are ten thousand ringgit or less or such other amount as may be prescribed, may pay to a person who satisfies the licensed insurer that he will apply the policy moneys for the maintenance and benefit the nominee under subsection 166(1), as the case may be, or a person to whom policy moneys are payable under subsection 169(2) or (6), subject to the execution of an undertaking by that person that policy moneys will be applies solely for the maintenance and benefit of the nominee;


ii)                  if the policy moneys are more than the amount in paragraph (a)(i), pay to the Public Trustee or a trust company nominated by the Public Trustee;

in the case of a person to whom policy moneys are payable under subsections 169(2) or (6), pay to the Public Trustee or a trust company nominated by the Public Trustee.

Friday, September 14, 2012

2-Day Workshop - Legal Aspects of Life Insurance

17th and 18th October 2012
Royal Lake Club, Kuala Lumpur
An Exclusive Workshop for:
  • Heads of departments, managers and executives of Claims, Policy Servicing, Underwriting, Group Insurance, Training and Operations Department of Life Insurance companies and Takaful Operators.
  • Managers and executives of banks and trust companies involved in Banccasurance.
  • Trainers, lecturers, and moderators of insurance and financial planning courses
  • Advocate & Solicitors and legal officers of insurance companies and takaful operators
Workshop Topics:
Legal Aspects of Life Insurance
Day 1 – 17th October 2012

I. Formation of Contract
  • Offer and Acceptance
  • Consideration and “Interim Coverage”
  • Principle of Utmost Good Faith
  • Basis Clause
  • S.147(4) Insurance Act - Incontestable/Indisputable Clause
II. Takaful Principles
  • Comparison with conventional insurance
  • al-Gharar, al-Maisir & al-Riba
III. Insurable Interest
  • S.152 Insurance Act
  • Understanding Insurable Interest
  • Industry Practices
IV. Duty of Disclosure
  • Basis of the Duty
  • Traditional View – Lambert’s Case
  • The change in the law – S.150(1) Insurance Act
  • Exceptions to the duty of disclosure – S.150(2) & (3) Insurance Act
V. Insurance Agents
  • Principal – Agent Relationship
  • Agent and the proposal form
  • Position taken by the law
  • Knowledge of the agent S.151 Insurance Act
  • Liability of insurer on terminated agents
VI. Group Insurance
  • Disclosure requirements and the insurer’s liability to individual members
Day 2 – 18th October 2012
VII. Nominations
  • Nominees as Executors
  • Payment to Nominees
  • Retrospective implications
VIII. Trust Policies
  • Nominees of Statutory Trusts –S.166 Insurance Act
  • Appointment of Trustees
  • Implication of “Credit-Proof” moneys
IX. Policies of Muslims
  • S.167(2) Insurance Act
  • Distribution of policy moneys
  • Policies effected before 1st January 1997
X. Assignments
  • Absolute/Conditional assignments
  • Assignments and their uses
  • S.168 Insurance Act
XI. Payment of Death Claims
  • Statutory requirement of insurers
  • When there are no named nominees
  • Position taken by the law
XII. Bankruptcy
  • Principles affecting life insurance policy administration and claims
  • Fraud & S.166(5) Insurance Act
  • Use of Absolute assignments and Applicant-Owner policies
     Highlights of the Workshop
  • Nominations, trusts and assignments – their uses, legal implications and related sales and marketing ideas.
  • Payment of claims and practical guidelines to avoid legal disputes
  • Recommendations for preparing new business and policy servicing forms
  • Guidelines for training administrative and agency personnel 
  Workshop Leader
   B.Sc (U.Mal), LL.B (Hons) (Lond), CLP
   AMII, ACII (Lond), CFP,Shariah RFP
      Karunamoorthy, an advocate and solicitor by qualification,has been a consultant and trainer in the financial services industry since 1979. His wide range of educational qualifications and vast experience has made him a leading authority on the subject of life insurance law and estate planning. He has provided his expertise to insurance companies, banks, unit trust companies, trust corporations and various professional associations in Malaysia. He is also a regular trainer and consultant in law and financial planning and has authored several books and publications on these subjects.

  Workshop Details
   Date : 17 and 18 October 2012 (Wednesday & Thursday)
   Time : 9.30am - 5.30pm
   Venue : Royal Lake Club , Perdana Room 2 , 2nd Floor
   Jalan Cenderamulia, off Jalan Parlimen
   50480 Kuala Lumpur.
   Fee : RM 795 per participant
           RM 745 each for three or four participants from the same organisation
           RM 695 each for five or more participants from the same organisation

(Fee inclusive of a comprehensive reference manual, lunch and tea-breaks)
   Closing date for registration – 11 October 2012
   Contact – Ms. Devi at 012-2547552 or Mr Prashant 017- 2669997
   Ans.Service/Fax: 03-26923045
   Participants are advised to bring along a copy of the Insurance Act 1996

Friday, May 4, 2012

Medical Insurance Made Affordable

A major player in the indusry has a unique offer for those seeking to purchase medical insurance. Pacific Insurance Bhd has a scheme known as the Pacific Medi Major which provides for expenses incurred based on reasonable and customary charges for medical treatment. This is similar to many of the medical insurance schemes available in Malaysia but this scheme has one crucial difference. The premiums are much lower because the insured has to bear the first portion of the medical expenses incurred.

In a sense, this  is similar to the "excess clause" in a motor insurance policy. Those familiar with having made claims in a comprehensive motor insurance policy for any 'own damage' claim of the motor vehicle will know that the insurer will only reimburse the expenses which are above the "excess" amount.

The Pacific Medi Major operates in a similar manner. Let us have a look at a simple example with actual figures in order to understand how this scheme works.

If a person aged 48 intends to purchase a plan based on Hospital Room and Board of RM300 per day:

He can claim for expenses up to an annual limit of RM75,000.00
He can claim for expenses up to a lifetime limit of RM300,000.00
For every disability he claims from the insurer, he will bear the first RM5000.00 of the expenses
His annual premium will be RM431.00

Other features of this scheme are as follows:

  1. An individual wishing to enter this scheme must be between the ages of 19 and 60
  2. The insured has the option to renew the coverage up to the age of 80 (subject to the usual limitations)
  3. Premiums are the same whether for male or female insured persons
  4. Premiums are age banded i.e. the same rates will apply within a particular age band. The insurer may, however, increase the premiums based on overall claim experience with the approval of Bank Negara Malaysia
  5. The insurer only pays out the claim after the insured has claimed from other insurers, if any
  6. Pre-existing illnesses and other usual exclusions apply
  7. Other features are very similar to those seen in most medical insurance schemes in the market
The Medi Major Plan is most suitable for:
  • Those who are not willing to pay the higher premiums as seen in the market and are able to bear the first portion of the loss
  • Those who are already having other medical insurance (for example, as provided by employees) but feel that such coverage is inadequate
Interested readers who require more details can post their questions in the comments section below or alternatively, visit for further information. 

Thursday, April 19, 2012

Impact of Bankruptcy on An Insurance Policy

In understanding the consequences of bankruptcy affecting life insurance policies, we must first know and get familiar with the legal processes and terminology involved. When an individual is insolvent and therefore unable to pay his debts, legal proceedings may be instituted against him. If the debt is not settled, the final step in this process is for the creditors to petition for a bankruptcy order against him. This order is issued by the courts and is the most effective way to enforce a judgment order against a debtor for the purposes of recovery of moneys owing to the creditor. The effect of a bankruptcy (receiving and adjudication) order is to freeze the assets of the debtor and subsequently to distribute them amongst his creditors. The various stages, rules and procedure of these steps are governed by the Bankruptcy Act 1967 of  which the amendments passed in 2003 are significant.

Notable amongst these amendments is that debts owing to creditors must be a minimum sum of RM 30 000.00 for a bankruptcy petition to be initiated. Another important change is that duties of the Official Assignee are now placed in the hands of the Director General of Insolvency (DGI). The person holding this office (or his representative) is effectively responsible for the management of the affairs of the debtor and has wide discretionary powers as provided in the Bankruptcy Act.

Once a person has been declared a bankrupt, it is his responsibility to declare to the DGI all his assets and income as well as to cooperate with him in carrying out his duties. These duties include the gathering of the assets of the debtor, managing and eventually distributing them amongst the creditors. The bankrupt can no longer enter into any contracts or financial dealings without the consent of the DGI. Any moneys or assets received by the bankrupt must be declared to the DGI who will allow him to use those for the necessary expenses of maintenance of himself and his family. In this aspect, the DGI has a discretion including whether to allow for the payment of life insurance premiums by the policy owner if he is declared a bankrupt. It must be noted that he is under no obligation to make any such allowances.
 Trust Policies Under Section 166 of the Insurance Act 1996. 
Section 166 of this Act provides for the  creation of trusts of insurance policies for the benefit of spouse, children and (in some cases) parents, if they are named as nominees of a non-muslim policy owner. It further states that proceeds of death claims of such policies “shall not form part of the estate of the deceased policy owner or be subject to his debts”. This trust, which is a unique “statutory gift”, is a benefit not available to any other assets of a policy owner. This is because other subsections in Section 166 allow the policyowner to deal with the trust policy (under certain conditions) during his lifetime but nevertheless provides this ‘creditor protection’ benefit to his family members. Thus, it can be stated that although the trust is created during the lifetime of the policyowner, the benefit only crystallises upon his death. It is therefore clear that creditors, through the office of the DGI in bankruptcy proceedings, cannot lay a claim on these moneys. They can however, lay a claim of the cash values of the policyowner because this is deemed to be part of his assets during his life-time. The DGI in these circumstances may write to the insurance company to provide for details of the policy especially the cash (or surrender) value and has a discretion to further direct it to terminate the policy contract and forward all available moneys to him.

Although death claim proceeds are “credit protected” as stated above, this benefit can be revoked if creditors successfully obtain such an order from the court on the grounds that premiums under the policy were paid to defraud them (Section 166(5) Insurance Act 1996).

Absolute Assignment of a Life Insurance Policy. 
The effect of Section 52 of the Bankruptcy Act is that an Absolute Assignment of a life insurance policy, unless made to a purchaser (or for valuable consideration) in good faith, is deemed void against the DGI if such an assignment was effected within 2 years of the bankruptcy. This means the DGI can direct such policies to be surrendered and realize the cash value, as he would in dealing with the other assets of a bankrupt. If death occurs to the bankrupt / assignor, the death claim proceeds of the policy may therefore be used to distribute amongst the creditors. The provisions of this section further state that in certain circumstances the assignment may also be deemed void, if it was created within 5 years of the bankruptcy.

This article attempts to convey a simple overview of the law in relation to bankruptcy and its effect on life insurance policies. It is written with the intention to minimise legal language as far as possible which always runs the risk of incompleteness. Furthermore, these is very little case law (or recorded cases) in this subject which may help one to understand the practical issues better. However, it must be noted that the Director General of Insolvency (previously the Official Assignee) has wide discretionary powers in dealing with the assets of the bankrupt.   

Thursday, April 12, 2012

When A Shareholder or Director Passes Away

This article highlights the issues that arise when a shareholder, who is also an active director of a private limited company (Sdn. Bhd.), passes away, and how life insurance can help to avoid or minimize the problems of such a consequence. To best understand this subject, an example is illustrated of an established and successful company with 3 shareholders who are also executive directors involved in the management and operations of the company. If one of these shareholders who owns, (for example) 30% of the shares of the company passes away, how would this affect his family, the other shareholders and the company? 

First and foremost, the following must be noted. The shares of an individual, like all his other personal assets, are part of his estate. Upon his death, these are dealt with by the estate administration laws. The legal representatives of the estate i.e. the executor or administrator, will be the only ones allowed to deal with the shares. Furthermore, they are authorized to deal with it only after the Probate or Letters of Administration are obtained from the High Court. This is applicable whether the Shareholder is Muslim or Non-Muslim.

Secondly, it must also be noted that upon death of a shareholder the Articles of Association of the company (which is a requirement of the Companies Act 1965) further stipulate that any transfer of shares may only be done with the consent of the directors. The legal representative is authorized to instruct the directors to transfer the shares according to the Will, or the Distribution laws of the country (this will differ in the case of Muslims and Non-Muslims). The beneficiaries who are entitled to the shares may also voluntarily transfer the shares to others (again with the consent of the directors). 

Thirdly, beneficiaries are entitled to only the rights and benefits (if any) that are due to them as a consequence of their ownership of the shares (e.g. dividends). They are, of course not entitled to the salary, allowances, perks or any other benefits which were given to the deceased Shareholder in his capacity as director. It must be pointed out that in such companies (as given in this example) the directors hardly ever declare dividends. Profits of the company are usually further invested in the company or are given to the directors as bonuses or in various forms of additional benefits. The net effect of this scenario is that, the beneficiaries are entitled to the shares whose monetary value would be a very subjective matter and if they are in urgent need of funds, they would need to sell the shares at a “willing-buyer-willing-seller” basis to the other shareholders / directors or any other persons interested in the purchase. It is thus obvious, that the beneficiaries would not be in a ‘strong-bargaining-position’. Family members holding on to the shares of a minority shareholder (30%), would not be too much of an inconvenience or bother to the surviving shareholders / director’s.      

In order to avoid these difficulties and pitfalls to the beneficiaries of a deceased shareholder / director, the following is recommended. Shareholders should enter into a ‘Buy-Sell Agreement’ of the shares which is to take effect upon the death of any one of them. The key issues to be addressed in such an agreement must include.

i)    The obligation of the surviving shareholders to purchase the shares of a deceased         shareholder.

ii)   The current value of each shareholders interest and provisions to revalue them in          the future.

iii)  The distribution of the deceased’s shares amongst the surviving shareholders.

iv)  The mechanisms of the transfer and execution of the relevant documents.

v)   The duty of the legal representatives of the estate of the deceased shareholder who     is bound by the terms of the agreement.

Of course, several other terms and conditions, depending on the peculiarities of each company will be further necessary to give effect to such an agreement. Foremost amongst these would be the appropriate funding method for the purchase of the deceased’s shares. Life insurance would be the obvious choice of moneys that would available upon the death of a shareholder. Suitably arranged insurance policies would be able to provide all or a substantial part of the moneys necessary to give effect to such a ‘Buy-Sell arrangement’.

As there are several details and legal matters to be considered shareholders, need to source for suitably qualified and experienced insurance agents or financial planners to ‘put together’ such a “buyout” scheme of shares upon the death of a shareholder.

Tuesday, April 3, 2012

Trust Policies – A Unique Benefit for Business Owners

The objective of Trust insurance policies is to establish a fund for the benefit of immediate family members of the policyowner which is not subject to creditors. This is the only asset a policyowner can own and control and yet enjoy such creditor protection benefits.

What are the features of such a policy?

·         It must be a life insurance or personal accident contract which a Non-Muslim policyowner purchases on his own life.

·         Nominees must be named in the contract and these are confined to the spouse and children of the policyowner. If the policyowner is single, parents who are named as nominees also qualify for these benefits

·         The appointment of Trustees in the policy is optional. If appointed, their duties are as follows

i)                   during the life-time of the policyowner, the consent of the Trustees is needed to make any contractual changes in the policy contract;
ii)                 upon the death of the policyowner, the Trustees receive the claim proceeds and are responsible to pay out or manage the fund for the beneficiaries.

·         It must be noted that the unique credit protection benefits in Trust policies may not be available to a policyowner if he had purchased the contract during a period of time when he was insolvent or was subject to legal action by creditors.

·         If the policyowner is declared bankrupt during his lifetime, the policy contract may have to be surrendered for its cash value which may be utilised to satisfy the creditors. This is subject to the discretion of the Director General of Insolvency.

·      The law relating to Trust policies is found in Section 166 of the Insurance Act 1996.

Monday, April 2, 2012

Watch Your Thoughts!

"The thought manifests as the word; 
the word manifests as the deed;
 the deed develops into habit; 
and habit hardens into character. 
So watch the thought and its ways with care,
and let it spring from love born out of concern for all beings." 

                                                                                - Buddha

Wednesday, March 28, 2012

Upcoming Workshop

Continuing Professional Development Workshop
 “Wealth Preservation Through Islamic Context”

En.Zainal Abidin Wazid

 He has been involved in the insurance industry for 20 years. Graduate of RFP & Shariah RFP, ChIFP, FChFP & ChLP. Completed his Diploma in Insurance (MII LUTC). Qualified in his company Award & Recognition. Regularly invited as speaker for University, College and Government Agency (INTAN). Regular speaker for National Service Programmes (PLKN). Moderator of RFP – Zakat classes (Module 4). Actively involved in many organisations, events & conventions.



He is a Past President and Fellow of Namlifa and was a member of the Board of Directors of the Malaysian Insurance Institute of Management (MIM). He has been involved in insurance and financial services since 1979. For more than 20 years, Mr.Karuna has worked with insurance agents and financial planners in “closing’ life insurance sales for business owners as well as preparing “ Buy-Sell” and ‘Key-Man” agreements. Over and above his wide range of academic qualifications, he has also been admitted to the Malaysian Bar as an Advocate and Solicitor.


Part 1 : Wealth Creation & Preservation of Estate thru Islamic Perspective (by En.Zainal Abidin Wazid)

•      Fundamental in Islamic Financing

•      Elements embodied in Wealth Preservation

•      Wealth Preservation planning – tools & instruments

•      Hibah, Waqaf, Nazar, Wisayah, Wadiah etc

•      Shariah & Legal issues in administration of Islamic Law in Malaysia

Part 2 : Estate & Succession Planning From Islamic Perspective (by Mr.Karunamoorthy) 

•      Characteristics of the Islamic wills

•      Fundamental in Estate Planning

•      Steps in Islamic Estate Planning

•      Legal issues in administration of Islamic Law of Succession

•      Succession Planning via Business insurance concept

Date: 25th April 2012

Time: 9.30am - 5.30pm

Venue: NAMLIFA, Training Room, Taman Miharja, Jalan Cheras, Kuala Lumpur

Fee: RM138.00 NAMLIFA member / RM188.00 NON member (Inclusive lunch & 2 tea-breaks)

CPD hours: 8.0 hours ( Structured)

Closing date for registration: 13th April 2012 - Limited Seats!!!

For details and registration, just fill in the attached form and fax it to 03-92811435 or email it to: for immediate seat confirmation.

Tuesday, March 27, 2012

Buyers Beware!

Thanks to credit cards,
too many people spend money they don't have, 
to buy things that they don't need, 
to impress people who they don't know and...
 who dont care!!

Emloyees Provident Fund

  1.   The nominees of a contributor receive the full sum upon the death of the member. 
  2.  If the contributor was a Non-Muslim, the nominees are effectively beneficiaries and are allowed to keep the moneys for themselves.
  3.  If the contributor was a Muslim, the nominees receive the moneys as administrators or trustees of the estate and are to distribute them in accordance with Islamic Law principles.e.g if the deceased did not leave a Will, then all the moneys will be distributed according to    the Faraid rules.
  4.  If a contributor has named more than one nominee, he may choose to allocate the appropriate percentage for each person. If he does not, then they will receive the moneys in equal shares.  
  5. If the nominees are minors, EPF will retain the moneys and pay to them upon reaching the age of 18 years.
  6.   If no nominee is named, the moneys will be deemed as part of the estate and will be administered accordingly i.e. testate and intestate procedures will apply.
  7. If one of the nominees named by a member predeceases him and he did not make a fresh nomination, then only the portion of the deceased nominee will fall under the estate of the deceased, to be administered and distributed accordingly. The surviving nominees will receive their portion of the moneys.
  8. If the member dies as a bankrupt, EPF will still pay out moneys to the nominees. This does not prohibit creditors from pursuing the nominees to recover their debts as the moneys are considered part of the estate of the deceased and subject to his debts. 
  9.  Those who have attained the age of 55 years and have withdrawn their moneys but continue to work subsequently should make a fresh nomination.

Sunday, March 25, 2012

Medical Insurance Benefits

very medical insurance policy represents a contract between the policyowner and the insurer. Such a contract is subject to terms and conditions which both the insurer and the policyowner must comply. The most important responsibility of the policyowner is that when he applies for the policy contract he must ensure that all the answers given in the application form are true to the best of his knowledge. Once the contract is in effect, he only needs to keep the insurer informed, if there are significant changes to his circumstances, for example his occupation.

The insurer on the other hand must honour all the terms and conditions of the policy contract. All insurers are licensed by Bank Negara Malaysia (BNM) and policyowners must know and believe that insurers must pay out all valid claims. There are several mechanisms in the industry that ensure protection to policyowners such as the Insurance Mediation Bureau, Complaints Department of Insurance Companies, Customer Service Bureau (CSB) in BNM as well as Laman Informasi Nasihat & Khidmat (BNMLINK).

When buying medical insurance, policy owners must understand that not all expenses are payable by the insurer. Most polices pay only if the insured person is hospitalised or has to go through surgical or similar procedures. Of course, in the case of treatment for accidents, the insured person can claim for expenses for treatment even if he not hospitalised. Most importantly, policy owners must ask and understand clearly what are those expenses that cannot be claimed form the insurer. Pre-existing illnesses or medical conditions are usually excluded from the policy contract. Policy owners must further look at the brochure or policy document and inquire about the list of items under the heading of “Exclusions”.

In Malaysia, because of BNM guidelines, there are many similar terms and conditions in the medical polices issued by all the insurers. However, the following are specific features to look out for

i)       Annual Premiums – this will depend on the age as well as the gender of the insured person.

ii)      Co-insurance – whether the policy owner is required to pay part of the claim eg. 10% of the expenses.

iii)     Annual Limits – this is the maximum amount that may be claimed in any one ‘policy year’.

iv)     Lifetime Limits – the maximum that may be claimed over the years. After this amount is reached, the insurer will no longer renew the policy contract.          

BNM guidelines compel insurers to renew all medical insurance polices up to the age as specified in the contract. In Malaysia, these maximum ages are usually between 70 to 85 years of the insured life. Premiums are usually “age banded” i.e. the amount will be the same for every 5 years as represented by the insurer. However, the insurer is allowed to increase the premiums by means of “loading” or “health extra”, if the claims experience of the insurer is high. If a insurer intends to increase the overall premiums in a specific medical plan offered to the public, it must obtain the approval of BNM.

In the future articles on this subject, we shall discuss common “Exclusions” found in medical insurance contracts as well as difficulties that policy owners may face when making claims from insurers.      

Welcome to my Blog

After many years of talking about it, I have finally decided to DO something about it and start up a blog. This comes on the heels of many requests to do so from my colleagues, students and friends in the insurance and financial services industry.

Here, you will be able to find current and up to date information regarding insurance law and estate planning and the importance of having a will.

It is also a place for me to share my thoughts and perspective on life, things that I have learnt along the way and various personal development techniques which have been of great help to me.

I hope you will find this to be a quick and useful source of information and an all around educational experience.