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.